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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For fiscal year ended December 31, 1993.
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
Commission file number 1-2691.
AMERICAN AIRLINES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1502798
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 963-1234
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
5-1/4% Subordinated Debentures New York Stock Exchange
6-1/4% Subordinated Debentures New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
045 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. (X)
American Airlines, Inc. is a wholly-owned subsidiary of AMR Corporation, and
there is no market for the registrant's common stock. As of March 1, 1994,
1,000 shares of the registrant's common stock were outstanding.
The registrant meets the conditions set forth in, and is filing this form with
the reduced disclosure format prescribed by, General Instructions J(1)(a) and
J(1)(b) of Form 10-K.
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PART I
ITEM 1. BUSINESS
American Airlines, Inc. (American or the Company), the principal subsidiary of
AMR Corporation (AMR), was founded in 1934. For financial reporting purposes,
American's operations fall within two major lines of business: the Air
Transportation Group and the Information Services Group.
AIR TRANSPORTATION GROUP
The Air Transportation Group consists primarily of American's Passenger and
Cargo divisions.
AMERICAN'S PASSENGER DIVISION is one of the largest scheduled passenger
airlines in the world. At the end of 1993, American provided scheduled jet
service to 106 cities in the U.S. mainland and Hawaii, 28 in Latin America, 14
in Europe and 24 other destinations worldwide, including service to six cities
provided through cooperative agreements with other airlines.
AMERICAN'S CARGO DIVISION provides a full range of freight and mail services to
shippers throughout the airline's system. In addition, through cooperative
agreements with other carriers, it has the ability to transport shipments to
virtually any country in the world.
INFORMATION SERVICES GROUP
The Information Services Group consists of three divisions of American: SABRE
Travel Information Network (STIN), SABRE Computer Services (SCS) and SABRE
Development Services (SDS).
STIN provides travel reservation services through its computer reservation
system, SABRE -- one of the largest privately owned, real-time computer systems
in the world.
SCS manages AMR's data processing centers, voice and data communications
networks and local-area computer networks worldwide.
SDS provides applications development, software solutions, consulting, and
other technology services to other AMR units.
Additional information regarding business segments is included in Note 11 to
the consolidated financial statements.
ROUTES AND COMPETITION
AIR TRANSPORTATION Service over almost all of American's routes is highly
competitive. Currently, any carrier deemed fit by the U.S. Department of
Transportation (DOT) is free to operate scheduled passenger service between any
two points within the U.S. and its possessions. On most of its routes,
American competes with at least one, and usually more than one, major domestic
airline including: America West Airlines, Continental Airlines, Delta
Airlines, Northwest Airlines, Southwest Airlines, Trans World Airlines, United
Airlines, and USAir. American also competes with national, regional,
all-cargo, and charter carriers and, particularly on shorter segments, ground
transportation.
Most major air carriers have developed hub-and-spoke systems and schedule
patterns in an effort to maximize revenue potential of their service. American
currently operates six domestic hubs: Dallas/Fort Worth, Chicago O'Hare,
Miami, Raleigh/Durham, Nashville, and San Juan, Puerto Rico. During 1993,
American closed its hub operation at San Jose, California. United Airlines and
Delta Airlines have large operations at American's Chicago and Dallas/Fort
Worth hubs, respectively.
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The four American Eagle carriers owned by AMR Eagle, an AMR subsidiary,
increase the number of markets the Air Transportation Group serves by providing
connections to American at its hubs and certain other major airports. Simmons
Airlines, Inc. serves Dallas/Fort Worth and Chicago. Flagship Airlines, Inc.
serves Miami, Raleigh/Durham, Nashville, and New York John F. Kennedy
International Airport. Executive Airlines, Inc. serves San Juan, Puerto Rico.
Wings West Airlines, Inc. serves Los Angeles, Orange County and selected other
airports in the western U.S. American's competitors also own, and have
marketing agreements with, regional carriers which provide service at their
major hubs.
In addition to its extensive domestic service, American provides service
to and from cities in various other countries, primarily across North, Central
and South America and Europe. In 1991, American added service to 20 cities in
15 countries in Latin America with the acquisition of route authorities from
Eastern Air Lines. In 1992, American added service from several U.S. gateway
cities to London's Heathrow Airport with the acquisition of Trans World
Airlines' route authorities. American's operating revenues from foreign
operations were approximately $3.9 billion in 1993, $3.7 billion in 1992 and
$2.7 billion in 1991. Additional information about the Company's foreign
operations is included in Note 10 to the consolidated financial statements.
Competition in international markets is generally subject to more
extensive government regulation than domestic markets. In these markets,
American competes with foreign-investor owned and national flag carriers and
U.S. carriers that have been granted authority to provide scheduled passenger
and cargo service between the U.S. and various overseas locations. American's
operating authority in these markets is subject to aviation agreements between
the U.S. and the respective countries, and in some cases, fares and schedules
require the approval of the DOT and the relevant foreign governments. Because
international air transportation is governed by bilateral or other agreements
between the U.S. and the foreign country or countries involved, changes in U.S.
or foreign government aviation policy could result in the alteration or
termination of such agreements, diminish the value of such route authorities,
or otherwise affect American's international operations. Bilateral relations
between the U.S. and various foreign countries served by American are currently
being renegotiated.
On all of its routes, American's pricing decisions are affected by
competition from other airlines, some of which have cost structures
significantly lower than American's and can therefore operate profitably at
lower fare levels. American and its principal competitors use inventory and
yield management systems that permit them to vary the number of discount seats
offered on each flight in an effort to maximize revenues.
American believes that it has several advantages relative to its
competition. Its fleet is young, efficient and quiet. It has a comprehensive
domestic and international route structure, anchored by efficient hubs, which
permit it to take full advantage of whatever traffic growth occurs. The
Company believes American's AAdvantage frequent flyer program, which is the
largest program in the industry, and its superior service also give it a
competitive advantage.
The major domestic carriers have some advantage over foreign competitors
in their ability to generate traffic from their extensive domestic route
systems. In many cases, however, U.S. carriers are limited in their rights to
carry passengers beyond designated gateway cities in foreign countries. Some
of American's foreign competitors are owned and subsidized by foreign
governments. To improve their access to each others markets, various U.S. and
foreign carriers have made substantial equity investments in, or established
marketing relationships with, other carriers.
COMPUTER RESERVATION SYSTEMS The complexity of the various schedules and
fares offered by air carriers has fostered the development of electronic
distribution systems. Travel agents and other subscribers access travel
information and book airline, hotel and car rental reservations and issue
airline tickets using these systems. American developed the SABRE computer
reservation system (CRS), which is the one of the largest CRSs in the world.
Competition among the CRS vendors is strong. Services similar to those offered
through SABRE are offered by several air carriers and other companies in the
U.S. and abroad, including: the Covia Partnership, owned by United Airlines,
USAir and various foreign carriers; Worldspan, owned by Delta Airlines,
Northwest Airlines, Trans World Airlines, and ABACUS Distribution Systems; and
System One, owned by Continental Airlines.
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The SABRE CRS has several advantages relative to its competition. The
Company believes that SABRE ranks first in market share among travel agents in
the U.S. The SABRE CRS is furthering its expansion into international markets
and continues to be in the forefront of technological innovation in the CRS
industry.
REGULATION
GENERAL The Airline Deregulation Act of 1978 (Act) and various other statutes
amending the Act, eliminated most domestic economic regulation of passenger and
freight transportation. However, the DOT and the Federal Aviation
Administration (FAA) still exercise certain regulatory authority over air
carriers under the Federal Aviation Act of 1958, as amended. The DOT maintains
jurisdiction over international route authorities and certain consumer
protection matters, such as advertising, denied boarding compensation, baggage
liability, and computer reservations systems. The DOT issued certain rules
governing the CRS industry which became effective on December 7, 1992, and
expire on December 31, 1997.
The FAA regulates flying operations generally, including establishing
personnel, aircraft and security standards. In addition, the FAA has
implemented a number of requirements that the Air Transportation Group is
incorporating into its maintenance program. These matters relate to, among
other things, inspection and maintenance of aging aircraft, corrosion control,
collision avoidance and windshear detection. Based on its current
implementation schedule, the Air Transportation Group expects to be in
compliance with the applicable requirements within the required time periods.
The U.S. Department of Justice has jurisdiction over airline antitrust
matters. The U.S. Postal Service has jurisdiction over certain aspects of the
transportation of mail and related services. Labor relations in the air
transportation industry are regulated under the Railway Labor Act, which vests
in the National Mediation Board certain regulatory powers with respect to
disputes between airlines and labor unions arising under collective bargaining
agreements.
FARES Airlines are permitted to establish their own domestic fares without
governmental regulation, and the industry is characterized by substantial price
competition. The DOT maintains authority over international fares, rates and
charges. International fares and rates are also subject to the jurisdiction of
the governments of the foreign countries which American serves. While air
carriers are required to file and adhere to international fare and rate
tariffs, many international markets are characterized by substantial
commissions, overrides, and discounts to travel agents, brokers and
wholesalers.
Fare discounting by competitors has historically had a negative effect on
American's financial results because American is generally required to match
competitors' fares to maintain passenger traffic. During recent years, a
number of new low-cost airlines have entered the domestic market and several
major airlines have begun to implement efforts to lower their cost structures.
Further fare reductions, domestic and international, may occur in the future.
If fare reductions are not offset by increases in passenger traffic or changes
in the mix of traffic that improves yields, the Air Transportation Group's
operating results will be negatively impacted.
AIRPORT ACCESS The FAA has designated four of the nation's airports --
Chicago O'Hare, New York Kennedy, New York LaGuardia, and Washington National
- -- as "high density traffic airports" and has limited the number of take-offs
and landings per hour, known as slots, during peak demand time periods at these
airports. Currently, the FAA permits the purchasing, selling and trading of
these slots by airlines and others, subject to certain restrictions. During
1993, the DOT issued final rules allowing air carriers to convert up to 50
percent of their commuter slots at Chicago O'Hare for use by jets with fewer
than 110 seats. Certain foreign airports, including London Heathrow, a major
European destination for American, also have slot allocations.
The Air Transportation Group currently has sufficient slot authorizations
to operate its existing flights and has generally been able to obtain slots to
expand its operations and change its schedules. There is no assurance,
however, that the Air Transportation Group will be able to obtain slots for
these purposes in the future, because, among other factors, slot allocations
are subject to changes in government policies.
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ENVIRONMENTAL MATTERS The Company is subject to various laws and government
regulations concerning environmental matters and employee safety and health in
the U.S. and other countries. U.S. federal laws that have a particular impact
on the Company include the Airport Noise and Capacity Act of 1990 (ANCA), the
Clean Air Act, and the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA or the Superfund). The Company is also subject to the
oversight of Occupational Safety and Health Administration (OSHA) concerning
employee safety and health matters. The U.S. Environmental Protection Agency
(EPA), OSHA, and other federal agencies have been authorized to promulgate
regulations that have an impact on the Company's operations. In addition to
these federal activities, various states have been delegated certain
authorities under the aforementioned federal statutes. Many state and local
governments have adopted environmental and employee safety and health laws and
regulations, some of which are similar to federal requirements. As a part of
its continuing environmental program, the Company has maintained compliance
with such requirements without any material adverse effect on its business.
The ANCA requires the phase-out by December 31, 1999, of Stage II
aircraft operations, subject to certain exceptions. Under final regulations
issued by the FAA in 1991, air carriers are required to reduce, by modification
or retirement, the number of Stage II aircraft in their fleets 25 percent by
December 31, 1994; 50 percent by December 31, 1996; 75 percent by December 31,
1998, and 100 percent by December 31, 1999. Alternatively, a carrier may
satisfy the regulations by operating a fleet that is at least 55 percent, 65
percent, 75 percent, and 100 percent Stage III by the dates set forth in the
preceding sentence, respectively.
The ANCA recognizes the rights of airport operators with noise problems
to implement local noise abatement programs so long as they do not interfere
unreasonably with interstate or foreign commerce or the national air
transportation system. Authorities in several cities have promulgated aircraft
noise reduction programs, including the imposition of night-time curfews. The
ANCA generally requires FAA approval of local noise restrictions on Stage III
aircraft first effective after October 1990, and establishes a regulatory
notice and review process for local restrictions on Stage II aircraft first
proposed after October 1990. At December 31, 1993, approximately 83 percent of
American's fleet was Stage III. While American has had sufficient scheduling
flexibility to accommodate local noise restrictions imposed to date, American's
operations could be adversely affected if locally- imposed regulations become
more restrictive or widespread.
The Clean Air Act provides that state and local governments may not adopt
or enforce aircraft emission standards unless those standards are identical to
the federal standards. The engines on American's aircraft meet the EPA's
turbine engine emissions standards.
American has been identified by the EPA as a potentially responsible
party (PRP) with respect to the following Superfund Sites: Operating
Industries, Inc., California; Cannons, New Hampshire; Byron Barrel and Drum,
New York; Palmer PSC, Massachusetts; Frontier Chemical, New York and Duffy
Brothers, Massachusetts. American has settled the Operating Industries,
Cannons and Byron Barrel and Drum matters, and all that remains to complete
these matters are administrative tasks. With respect to the Palmer PSC,
Frontier Chemical and Duffy Brothers sites, American is one of several PRPs
named at each site. Although they are Superfund Sites, American's alleged
waste disposal is minor compared to the other PRPs.
American does not expect these matters, individually or collectively, to
have a material impact on its financial condition, operating results or cash
flows.
LABOR
The airline business is labor intensive. On December 31, 1993, American had
approximately 95,800 employees. Wages, salaries and benefits represented
nearly 35 percent of American's consolidated operating expenses for the year
ended December 31, 1993. To improve its competitive position, American has
undertaken various steps to reduce its unit labor costs, including workforce
reductions.
The majority of American's employees are represented by labor unions and
covered by collective bargaining agreements. American's relations with such
labor organizations are governed by the Railway Labor Act. Under this act, the
collective bargaining agreements among American and these organizations become
amendable upon the expiration of their stated term. If either party wishes to
modify the terms of any such agreement, it must notify the other party before
the contract becomes amendable. After receipt of such notice,
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the parties must meet for direct negotiations, and if no agreement is reached,
either party may request that a federal mediator be appointed. If no agreement
is reached in mediation, the National Mediation Board may determine, at any
time, that an impasse exists and may proffer arbitration. Either party may
decline to submit to arbitration. If arbitration is rejected, a 30-day
"cooling-off" period commences, following which the labor organization may
strike and the airline may resort to "self-help," including the imposition of
its proposed amendments and the hiring of replacement workers.
American's collective bargaining agreement with the Association of
Professional Flight Attendants became amendable on December 31, 1992. The
National Mediation Board declared a cooling-off period in the negotiations in
September 1993, following a long period of negotiation and mediation. After
enduring a five-day strike by the union in November, American agreed to resolve
the remaining issues through binding arbitration. American imposed certain
contract amendments after the union declared the strike. The arbitration
process is expected to be complex and will likely not be decided for several
months. While the ultimate outcome is uncertain, the new contract will likely
result in higher unit labor costs in 1994.
American's collective bargaining agreements with the Allied Pilots
Association and Flight Engineers International Association become amendable on
August 31, 1994. American's collective bargaining agreement with the Transport
Workers Union becomes amendable on March 1, 1995.
FUEL
American's operations are significantly affected by the availability and price
of jet fuel. American's fuel costs and consumption for the years 1989 through
1993 were:
Percent of
Gallons American's
Consumed Total Cost Average Price Operating
Year (in millions) (in millions) Per Gallon Expenses
---- ------------- ------------- ------------- ----------
1989 2,241 $ 1,367 61.01 cents 14.8%
1990 2,397 1,899 79.22 17.4
1991 2,527 1,780 70.47 14.7
1992 2,862 1,862 65.06 13.6
1993 2,939 1,818 61.85 12.8
Based upon American's 1993 fuel consumption, a one-cent change in the
average annual price-per-gallon of jet fuel caused a change of approximately
$2.5 million in American's monthly fuel costs. American's fuel cost in 1993
decreased 2.4 percent over the prior year, primarily due to a 4.9 percent
decrease in the average price per gallon, offset by a 2.7 percent increase in
gallons consumed.
Changes in fuel prices have industry-wide impact and benefit or harm
American's competitors as well as American. Accordingly, lower fuel prices may
be offset by increased price competition and lower revenues for all air
carriers. Fuel prices may increase in the future. There can be no assurance
that American will be able to pass such cost increases on to its customers by
increasing fares in the future.
Most of American's fuel is purchased pursuant to contracts which, by
their terms, may be terminated upon short notice. While American does not
anticipate a significant reduction in fuel availability, dependency on foreign
imports of crude oil and the possibility of changes in government policy on jet
fuel production, transportation and marketing make it impossible to predict the
future availability of jet fuel. If there were major reductions in the
availability of jet fuel, American's business would be adversely affected.
FREQUENT FLYER PROGRAM
American established the AAdvantage frequent flyer program (AAdvantage) to
develop passenger loyalty by offering awards to travelers for their continued
patronage. AAdvantage members earn mileage credits for flights on American,
American Eagle, or certain flights on participating airlines, or by utilizing
services of other program participants, including hotels, car rental companies,
and bank credit card issuers. In addition,
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American periodically offers special short-term promotions which allow members
to earn additional free travel awards or mileage credits. American reserves
the right to change the AAdvantage program rules, regulations, travel awards
and special offers at any time. American may initiate changes impacting, for
example, participant affiliations, rules for earning mileage credit, mileage
levels and awards, blackout dates and limited seating for travel awards, and
the features of special offers. American reserves the right to end the
AAdvantage program with six months notice.
Mileage credits can be redeemed for free, discounted or upgraded travel
on American, American Eagle or participating airlines, or for other travel
industry awards. Once a member accrues sufficient mileage for an award, the
member may request an award certificate from American. Award certificates may
be redeemed up to one year after issuance. Most travel awards are subject to
blackout dates and capacity control seating. All miles earned after July 1989
must be redeemed within three years or they expire.
American accounts for its frequent flyer obligation on an accrual basis
using the incremental cost method. American's frequent flyer liability is
accrued each time a member accumulates sufficient mileage in his or her account
to claim the lowest level of free travel award (20,000 miles) and such award is
expected to be used for free travel on American. American includes fuel, food,
and reservations/ticketing costs, but not a contribution to overhead or profit,
in the calculation of incremental cost. The cost for fuel is estimated based
on total fuel burn traced by day by various categories of markets, with an
amount allocated to each passenger. Food costs are tracked monthly by market
category, with an amount allocated to each passenger. Reservation/ticketing
costs are based on the total number of passengers (including those traveling on
free awards) divided into American's total expense for these costs. No
accounting is performed for non-travel awards redeemed since the cost to
American, if any, is de minimis.
At December 31, 1993 and 1992, American estimated that approximately 3.9
million and 3.7 million free travel awards, respectively, were eligible for
redemption. At December 31, 1993 and 1992, American estimated that
approximately 3.6 million and 3.4 million free travel awards, respectively,
were expected to be redeemed for free travel on American. In making this
estimate, American has excluded mileage in inactive accounts, mileage related
to accounts that have not yet reached the lowest level of free travel award,
mileage that is not expected to ever be redeemed for free travel, and mileage
related to accounts that have reached the lowest level of free travel award but
are estimated based on historical data to be redeemed for discounts and
upgrades, free travel on participating airlines other than American, or
services other than free travel, for which American has no obligation to pay
the provider of those services. The liability for the program mileage that has
reached the lowest level of free travel award and is expected to be redeemed
for free travel on American and deferred revenues for mileage sold to others
participating in the program was $380 million and $285 million, representing
9.0 percent and 5.6 percent of American's total current liabilities, at
December 31, 1993 and 1992, respectively.
The number of free travel awards used for travel on American during the
years ended December 31, 1993, 1992 and 1991 was approximately 2,163,000,
1,474,000, and 1,237,000, respectively, representing 9.5 percent, 6.0 percent
and 5.3 percent of total revenue passenger miles for each period, respectively.
American believes displacement of revenue passengers is insignificant given
American's load factors, its ability to manage frequent flyer seat inventory
and the relatively low ratio of free award usage to revenue passenger miles.
Effective February 1, 1995, the lowest level of free travel award will
increase from 20,000 to 25,000 miles.
OTHER MATTERS
SEASONALITY AND OTHER FACTORS The Air Transportation Group's results of
operations for any interim period are not necessarily indicative of those for
the entire year, since the air transportation business is subject to seasonal
fluctuations. Higher demand for air travel has traditionally resulted in more
favorable operating results for the second and third quarters of the year than
for the first and fourth quarters.
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The results of operations in the air transportation business have also
significantly fluctuated in the past in response to general economic
conditions. In addition, fare initiatives, fluctuations in fuel prices, labor
strikes and other factors could impact this seasonal pattern. Unaudited
quarterly financial data for the two-year period ended December 31, 1993, is
included in Note 12 to the consolidated financial statements.
No material part of the business of American and its subsidiaries is
dependent upon a single customer, or very few customers. Consequently, the
loss of the Company's largest few customers would not have a materially adverse
effect upon American.
INSURANCE American carries insurance for public liability, passenger
liability, property damage and all-risk coverage for damage to its aircraft, in
amounts which, in the opinion of management, are adequate.
OTHER GOVERNMENT MATTERS In time of war or during an unlimited national
emergency or civil defense emergency, American and other major air carriers may
be required to provide airlift services to the Military Airlift Command under
the Civil Reserve Air Fleet program.
ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
Owned and leased aircraft operated by American at December 31, 1993, included:
Weighted
Current Average
Seating Capital Operating Age
Equipment Type Capacity Owned Leased Leased Total (Years)
-------------- -------- ----- ------- --------- ------ --------
JET AIRCRAFT
Airbus A300-600R 267 10 - 25 35 4
Boeing 727-200 150 56 22 36 114 19
Boeing 757-200 188 37 6 32 75 3
Boeing 767-200 204 8 - - 8 11
Boeing 767-200 Extended Range 172 9 13 - 22 7
Boeing 767-300 Extended Range 215 11 1 22 34 3
Fokker 100 97 53 5 4 62 1
McDonnell Douglas DC-10-10 237/290 26 7 - 33 19
McDonnell Douglas DC-10-30 227/273 4 1 - 5 19
McDonnell Douglas MD-11 251 19 - - 19 2
McDonnell Douglas MD-80 142 119 25 116 260 6
------- ----- ------ ---- -----
Total 352 80 235 667 8
======= ===== ====== ==== =====
For information concerning the estimated useful lives and residual values
for owned aircraft, lease terms and amortization relating to aircraft under
capital leases, and acquisitions of aircraft, see Notes 1, 3 and 4 to the
consolidated financial statements. See Management's Discussion and Analysis
for discussion of the retirement of certain widebody aircraft from the fleet.
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Lease expirations for American's leased aircraft included in the above
table as of December 31, 1993, were:
1999
and
Equipment Type 1994 1995 1996 1997 1998 Thereafter
- -------------- ---- ---- ---- ---- ---- ----------
JET AIRCRAFT
Airbus A300-600R - - - - - 25
Boeing 727-200 17 27 - - - 14
Boeing 757-200 - - - - - 38
Boeing 767-200 Extended Range - - - - - 13
Boeing 767-300 Extended Range - - - - - 8
Fokker 100 - - - - - 9
McDonnell Douglas DC-10-10 - - 3 4 - -
McDonnell Douglas DC-10-30 - - - - 1 -
McDonnell Douglas MD-80 - - - - - 141
----- ---- ----- ----- ----- -----
17 27 3 4 1 248
===== ==== ===== ===== ===== =====
The table excludes leases for 15 Boeing 767-300 Extended Range aircraft
which can be canceled with 30 days' notice during the first 10 years of the
lease term. At the end of that term in 1998, the leases can be renewed for
periods ranging from 10 to 12 years. The table also excludes one Boeing
737-200 and four Boeing 737-300 aircraft which have been subleased and one
McDonnell Douglas DC-10-30 aircraft which has been grounded.
Substantially all of American's aircraft leases include an option to
purchase the aircraft or to extend the lease term, or both, with the purchase
price or renewal rental to be based essentially on the market value of the
aircraft at the end of the term of the lease or at a predetermined fixed rate.
GROUND PROPERTIES
American leases, or has built as leasehold improvements on leased property,
most of its airport and terminal facilities; certain corporate office,
maintenance and training facilities in Fort Worth, Texas; its principal
overhaul and maintenance base and computer facility at Tulsa International
Airport, Tulsa, Oklahoma; its regional reservation offices; and local ticket
and administration offices throughout the system. American has entered into
agreements with the Tulsa Municipal Airport Trust; the Alliance Airport
Authority, Fort Worth, Texas; and the Dallas/Fort Worth, Chicago O'Hare,
Raleigh/Durham, Nashville, San Juan, New York, and Los Angeles airport
authorities to provide funds for, among other things, additional facilities and
equipment, and improvements and modifications to existing facilities, which
equipment and facilities are or will be leased to American. American also
utilizes public airports for its flight operations under lease arrangements
with the municipalities or governmental agencies owning or controlling them and
leases certain other ground equipment for use at its facilities.
For information concerning the estimated lives and residual values for
owned ground properties, lease terms and amortization relating to ground
properties under capital leases, and acquisitions of ground properties, see
Notes 1, 3 and 4 to the consolidated financial statements.
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ITEM 3. LEGAL PROCEEDINGS
In December 1992, the U.S. Department of Justice filed an antitrust lawsuit in
the U.S. District Court for the District of Columbia under Section 1 of the
Sherman Act against several airlines, including the Company, alleging price
fixing based upon the industry's exchange of fare information through the
Airline Tariff Publishing Company. In March 1994, the Company and the
remaining defendants in the case agreed to settle the lawsuit without admitting
liability by entering into a stipulated final judgment that prohibits or
restricts certain pricing practices including the announcement of fare
increases before their effective date. The proposed final judgment is subject
to approval by the Court following a public notice and comment period
prescribed by statute. The Company does not anticipate a material financial
impact from the settlement or compliance with the stipulated judgment. Private
class action claims with similar allegations were settled by the Company and
other airlines which became final in March 1993. Prior to the private class
action settlement becoming final, the Company and several other airlines
voluntarily altered certain pricing practices at issue in the lawsuits to avoid
exposure to additional claims.
American has been sued in two class action cases that have been
consolidated in the Circuit Court of Cook County, Illinois, in connection with
certain changes made to American's AAdvantage frequent flyer program in May,
1988. (Wolens, et al v. American Airlines, Inc., No. 88 CH 7554, and Tucker v.
American Airlines, Inc., No. 89 CH 199.) In both cases, the plaintiffs seek to
represent all persons who joined the AAdvantage program before May 1988. The
complaints allege that, on that date, American implemented changes that limited
the number of seats available to participants traveling on certain awards and
established holiday blackout dates during which no AAdvantage seats would be
available for certain awards. The plaintiffs allege that these changes
breached American's contracts with AAdvantage members and were in violation of
the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer
Fraud Act). Plaintiffs seek money damages of an unspecified sum, punitive
damages, costs, attorneys fees and an injunction preventing the Company from
making any future changes that would reduce the value of AAdvantage benefits.
American moved to dismiss both complaints, asserting that the claims are
preempted by the Federal Aviation Act and barred by the Commerce Clause of the
U.S. Constitution.
The trial court denied American's preemption motions, but certified its
decision for interlocutory appeal. In December 1990, the Illinois Appellate
Court held that plaintiffs' claims for an injunction are preempted by the
Federal Aviation Act, but that plaintiffs' claims for money damages could
proceed. On March 12, 1992, the Illinois Supreme Court affirmed the decision
of the Appellate Court. American sought a writ of certiorari from the U.S.
Supreme Court; and on October 5, 1992, that Court vacated the decision of the
Illinois Supreme Court and remanded the cases for reconsideration in light of
the U.S. Supreme Court's decision in Morales v. TWA, et al, which interpreted
the preemption provisions of the Federal Aviation Act very broadly. On
December 16, 1993, the Illinois Supreme Court rendered its decision on remand,
holding that plaintiffs' claims seeking an injunction were preempted, but that
identical claims for compensatory and punitive damages were not preempted. On
February 8, 1994, American filed petition for a writ of certiorari in the U.S.
Supreme Court. The Illinois Supreme Court granted American's motion to stay
the state court proceeding pending disposition of American's petition in the
U.S. Supreme Court.
AMR and American are vigorously defending all of the above claims.
-9-
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted under the reduced disclosure format pursuant to General Instruction
J(2)(c) of Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
American is a wholly-owned subsidiary of AMR Corporation and there is no market
for the Registrant's Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Omitted under the reduced disclosure format pursuant to General Instruction
J(2)(a) of Form 10-K.
-10-
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Abbreviated pursuant to General Instruction J(2)(a) of Form 10-K).
HIGHLIGHTS
SUMMARY American's net income in 1993 was $23 million. The 1993 results
reflect the negative impact of a five-day strike by the union representing
American's flight attendants in November. The results also include a $125
million charge ($79 million after tax) for the retirement of certain DC-10
aircraft and a positive $115 million adjustment to revenues ($67 million net of
related commission expense and taxes) for a change in estimate related to
certain earned passenger revenues. In 1992, American recorded a net loss of
$735 million. The loss for 1992, before the effect of the adoption of two new
mandatory accounting standards, was $274 million. The Company's 1993 operating
income was $564 million, compared to an operating loss of $77 million in 1992.
In the first quarter of 1993, AMR created and began implementing a new
strategic framework, known as the Transition Plan. The Plan has three parts,
each intended to improve results. First, make AMR's core airline business
bigger and stronger where economically justified. Second, and conversely,
shrink the airline where it cannot compete profitably. Third, reallocate
resources and effort to AMR and American's growing information and management
services businesses which are more profitable than the airline.
Major events relating to the Transition Plan in 1993 included:
. The SABRE Technology Group -- later renamed The SABRE Group -- was formed
during the second quarter of 1993.
. American announced its decision to retire 42 widebody DC-10 jets to
reduce the airline's capacity and lower operating expenses.
. American shifted domestic capacity to its major hubs in Dallas/Fort Worth
and Miami. The AMR Eagle carriers added or increased service in certain
other markets as American reduced or withdrew jet service.
. American significantly reduced service at San Jose, California.
. To provide increased value to business customers, American expanded its
successful three-class transcontinental service to new markets, added
more frequent flights on business routes such as Dallas/Fort Worth -
Chicago, and added more first class seats on some narrowbody aircraft.
. American increased capacity in Latin America by 17.5 percent over 1992.
American's 1993 results benefited from strengthened domestic revenues in
comparison to 1992. American's 1992 domestic revenues suffered from
competitive fare reductions below the levels American established in its Value
Pricing Plan in April 1992. European revenues, however, were negatively
impacted in 1993 by aggressive fare discounting by competitors, weak European
economies and a stronger U.S. dollar.
The Company's 1993 results also reflect the dramatic adverse impact of a
five-day strike by American's flight attendants' union in November. The
strike's after-tax impact on fourth quarter results, estimated at $190 million,
offset earnings generated earlier in the year.
With the downsizing of unprofitable operations, American's workforce
began to decline following years of double-digit percentage increases. In
1993, American provided $25 million for employee severance, primarily
management/specialist and operations employees.
-11-
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REVENUES
1993 COMPARED TO 1992 American's operating revenues increased 8.4 percent to
$14.7 billion in 1993, compared to $13.6 billion in 1992. Passenger revenues
rose 8.4 percent, $1.0 billion, primarily as a result of an 8.8 percent
increase in passenger yield (the average amount one passenger pays to fly one
mile), partially offset by a 0.3 percent decline in passenger traffic.
American's passenger yield in 1993 increased to 13.28 cents, primarily as
a result of a very weak comparison base of 1992, when revenues were negatively
impacted by competitors' drastic discounting of domestic fares. For the year,
domestic yield increased 13.5 percent. International yield was mixed,
increasing 13.9 percent in the Pacific, unchanged in Latin America and
declining 10.1 percent in Europe. In 1993, American derived 73.8 percent of
its passenger revenues from domestic operations and 26.2 percent from
international operations.
Although American's system capacity, as measured by available seat miles
(ASMs), increased 5.2 percent, its traffic, as measured by revenue passenger
miles (RPMs), decreased 0.3 percent. The drastic fare discounting drove
traffic up to record levels in 1992. Traffic suffered in 1993 from American's
inability to carry passengers during the flight attendants' union strike in
November and the adverse effect of the strike on passenger demand during the
month of December. American's domestic traffic decreased 3.5 percent, to 69.7
billion RPMs, while domestic capacity grew 2.9 percent. International traffic
grew 9.1 percent, to 27.5 billion RPMs on capacity growth of 12.1 percent. The
increase in international traffic was led by a 14.7 percent increase in Latin
America on capacity growth of 17.5 percent, and a 7.4 percent increase in
Europe on capacity growth of 10.8 percent.
Cargo revenues increased 10.4 percent, $60 million, driven by a 22.5
percent increase in American's domestic and international cargo volumes,
partially offset by decreasing yields brought about by strong price competition
resulting from excess industry capacity.
Other revenues, consisting of service fees, liquor revenues, duty-free
sales, tour marketing and miscellaneous other revenues, increased 5.2 percent,
$26 million, primarily as a result of increased traffic.
Information Services Group revenues increased 7.3 percent, $79 million,
primarily due to increased booking fees resulting from growth in booking
volumes and average fees collected from participating vendors.
EXPENSES
1993 COMPARED TO 1992 Operating expenses increased 3.8 percent, $515 million.
American's capacity increased 5.2 percent, to 160.9 billion ASMs, due primarily
to the addition of new aircraft. American's Passenger Division cost per ASM
decreased by 2.0 percent, to 8.25 cents.
Wages, salaries and benefits rose 5.1 percent, $237 million, due to wage
and salary adjustments for existing employees and rising health-care costs. In
addition, during the fourth quarter, American recorded a $25 million severance
provision in conjunction with layoffs and voluntary terminations of
management/specialist and operations personnel.
Aircraft fuel expense decreased 2.4 percent, $44 million, due to a 4.9
percent decrease in the average price per gallon, partially offset by a 2.7
percent increase in gallons consumed. The average price per gallon decreased
from $0.65 per gallon in 1992 to $0.62 per gallon in 1993. American consumed
an average of 245 million gallons of fuel each month. A one-cent decline in
fuel prices saves approximately $2.5 million per month.
Commissions to agents increased 10.3 percent, $130 million, due
principally to increased passenger revenues and increased incentives for travel
agents.
Depreciation and amortization increased 16.4 percent, $157 million,
primarily due to the addition of 44 owned jet aircraft and other capital
equipment.
Food service cost was flat, reflecting the 9.1 percent increase in
international traffic, where food costs are greater, offset by the 3.5 percent
decrease in domestic traffic.
-12-
14
Maintenance materials and repairs expense decreased 8.9 percent, $53
million, due principally to the retirement of older aircraft and increased
operational efficiencies.
Other operating expenses (including crew travel expenses, booking fees,
purchased services, communications charges, credit card fees and advertising)
increased 2.4 percent, $54 million, primarily due to the increase in capacity
and an increase in fees paid to affiliates for passengers connecting with
American flights.
Interest capitalized decreased 50.0 percent, $49 million, as a result of
the decrease in the average balance during the year of purchase deposits for
flight equipment and the decline in interest rates.
Miscellaneous - net for 1993 includes a $125 million charge related to
the retirement of 31 DC-10 aircraft. Included in Miscellaneous - net for 1992
is a $14 million provision for a cash payment representing American's share of
a multi-carrier antitrust settlement.
OTHER INFORMATION
DEFERRED TAX ASSETS As of December 31, 1993, the Company had deferred tax
assets aggregating approximately $2.0 billion, including approximately $337
million of alternative minimum tax (AMT) credit carryforwards. The Company
believes substantially all the deferred tax assets, other than the AMT credit
carryforwards, will be realized through reversal of existing taxable temporary
differences. The Company anticipates using its AMT credit carryforwards, which
are available for an indefinite period of time, against its future regular tax
liability within the next 10 years for several reasons. Although the Company
incurred net losses in 1990 through 1993, it recorded substantial income before
taxes and taxable income during the seven-year period 1983 through 1989 of
approximately $3.2 billion and $1.8 billion, respectively. The Company is
aggressively pursuing revenue enhancement and cost reduction initiatives to
restore profitability. The Company has also substantially curtailed its
planned capital spending program, which will accelerate the reversal of
depreciation differences between financial and tax income, thus increasing
taxable income.
ENVIRONMENTAL MATTERS American has been notified of potential liability with
regard to several environmental cleanup sites. At sites where remedial
litigation has commenced, potential liability is joint and several. American's
alleged volumetric contributions at the sites are minimal. American does not
expect these actions, individually or collectively, to have a material impact
on its financial condition, operating results or cash flows.
DISCOUNT RATE Due to the decline in interest rates during 1993, the discount
rate used to determine the Company's pension obligations as of December 31,
1993 and the related expense for 1994, has been reduced. The impact on 1994
pension expense of the change in the discount rate will be substantially offset
by the significant appreciation in the market value of pension plan assets
experienced during 1993.
PROPOSED SETTLEMENT OF LITIGATION During 1992, American and certain other
carriers agreed to settle various class action claims, subject to approval by
the U.S. District Court for the Northern District of Georgia. Under the terms
of the agreement, the carriers paid a total of approximately $50 million in
cash and will jointly issue and distribute approximately $408 million in face
amount of certificates for discounts of approximately 10 percent on future air
travel on any of the carriers. A liability has not been established for the
certificate portion of the settlement since American expects that, in the
aggregate, future revenues received upon redemption of the certificates will
exceed the related cost of providing the air travel. American anticipates that
the share of the certificates redeemed on American may represent, but is not
limited to, American's 26 percent market share among the carriers. The
ultimate impact of the settlement on American's revenues, operating margins and
earnings is not reasonably estimable since both the portion of certificates to
be redeemed on American and the stimulative or depressive effect of the
certificate redemption on revenues is not known.
-13-
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OUTLOOK FOR 1994
During 1993, AMR completed a comprehensive review of the competitive realities
of its businesses and determined that it must change significantly in order to
generate sufficient earnings. The fundamental problems of the airline --
increasing competition from low- cost, low-fare carriers, its inability to
reduce labor costs to competitive levels, and the changing values of its
customers -- demand new solutions. As an initial response to that need, AMR
created and began implementing a new strategic framework known as the
Transition Plan. The plan has three parts, each intended to improve AMR's
results. First, make the core airline business bigger and stronger where
economically justified. Second, and conversely, shrink the airline where it
cannot compete profitably. Third, reallocate resources and effort to the
growing information and management services businesses, which are more
profitable than the airline.
An integral part of the Transition Plan is the expansion of the business
activities of The SABRE Group. The SABRE Group was formed as a business unit
during 1993, integrating reporting relationships among American's STIN, SCS and
SDS divisions and AMR's other information technology businesses. AMR plans to
more fully develop and market its distinct information technology expertise
through The SABRE Group and continues to investigate opportunities for further
expanding its information technology businesses. These opportunities may
include the combination of marketing and/or developmental functions of The
SABRE Group businesses and/or a formal reorganization of The SABRE Group into
one or more subsidiaries of AMR. This formal reorganization, if concluded,
would likely involve the transfer to AMR, by means of a dividend, of American's
STIN, SCS and SDS divisions. In addition, a formal reorganization would also
result in the Company's compliance with a recent directive from the European
Community Council of Ministers that, in effect, requires that a CRS operating
in the European Community have a legal status that is separate and apart from
its affiliated airline.
Further, the Transition Plan recognizes the unfavorable and uncertain
economics which have characterized the core airline business in recent years,
acknowledges the airline cost problem and seeks to maximize the contribution of
the Company's more profitable businesses. In 1994, AMR will continue the
course of change initiated in 1993 under the Transition Plan. Over the long
term, AMR will continue its best efforts to reduce airline costs and to restore
the airline operations to profitability. Based on the success or failure of
those efforts, AMR will make ongoing determinations as to the appropriate
degree of reallocation of resources from the airline operations to its other
businesses, which may include, if the airline cannot be run profitably, the
disposition or termination, over the long term, of a substantial part or all of
the airline operations.
AIR TRANSPORTATION GROUP During 1993, American closed its hub and
dramatically reduced operations at San Jose, California, and expanded its
Dallas/Fort Worth and Miami hubs. The airline will continue to reduce or
eliminate service where it cannot operate profitably. American's regional
airline affiliates, subsidiaries of AMR Eagle, have added turboprop service on
some routes where jet service has been canceled, and they will continue to
pursue these opportunities in 1994.
In 1993, American removed 21 McDonnell Douglas DC-10 and 28 Boeing 727
aircraft from service. In 1994, an additional 14 DC- 10s and 31 727s will be
retired. As a result, in 1994 American's available seat miles are expected to
decrease by almost five percent. Domestic capacity will drop by almost seven
percent, while international capacity will increase slightly. The capacity
reduction will be the first at American since 1981.
Aircraft retirements have necessitated the furlough of about 3,700
American employees since late 1992. The Company anticipates further workforce
reductions in 1994 and, accordingly, made a provision for the cost of these
reductions in 1993. Fewer aircraft deliveries will also translate into lower
capital spending.
American's revenue plan for 1994 reflects continued emphasis on producing
premium yields by attracting more full fare passengers than its competitors.
As part of this plan, American will expand its successful three-class domestic
transcontinental service, add more first class seats on some narrowbody
aircraft and increase frequencies in business-oriented markets. In addition,
American will seek to grow its cargo revenues again in 1994.
-14-
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In 1993, American's Passenger Division cost per available seat mile
declined by 2.0 percent, largely due to a 4.9 percent drop in the cost of jet
fuel. In 1994, though American will continue its rigorous program of cost
control, it expects units costs, excluding fuel, to rise modestly. This
increase will be driven by higher unit labor costs due to pay scale and average
seniority escalations.
On August 10, 1993, the Omnibus Budget Reconciliation Act was signed into
law, imposing a new 4.3 cents per gallon tax on commercial aviation jet fuel
for use in domestic operations. The new tax will become effective October 1,
1995, and is scheduled to continue until October 1, 1998. American estimates
the resulting annual increase in fuel taxes will be approximately $90 million.
AMR instituted a program in the latter half of 1993 to reduce interest
costs. At year-end interest rates, the Company anticipates that this program,
which involves such things as interest rate swaps, will produce significant
interest cost savings. This savings is expected to largely offset the
additional interest cost of new financings in 1994.
In November 1993, American endured a five-day strike by its flight
attendants' union; the strike ended when both sides agreed to binding
arbitration. The arbitration process is expected to be complex and will likely
not be decided for several months. While the ultimate outcome is uncertain,
the new contract will likely result in higher unit labor costs in 1994.
American's labor contract with its pilots' union becomes amendable in
August 1994. The Company and the union leadership are pursuing opportunities
to streamline the negotiation and settlement process. The ultimate outcome of
these negotiations cannot be estimated at this time.
INFORMATION SERVICES GROUP The integration of AMR's information services
businesses will continue in 1994 with the integration of American Airlines
Decision Technologies, which is a subsidiary of AMR, SDS and other units in The
SABRE Group into SABRE Decision Technologies (SDT). SDT will develop and
market The SABRE Group's expanding array of information systems products and
services to a growing list of airline and other customers throughout the world.
STIN will seek to sustain its revenue growth through continued
geographical expansion of the SABRE computerized reservation system and the
sale of its leading-edge automated reservations products such as SABRExpress,
SABRExpress Ticketing and SABRE TravelBase, a new travel agency accounting
system.
-15-
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors 17
Consolidated Statement of Operations 18
Consolidated Balance Sheet 19
Consolidated Statement of Cash Flows 21
Consolidated Statement of Stockholder's Equity 22
Notes to Consolidated Financial Statements 23
-16-
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
American Airlines, Inc.
We have audited the accompanying consolidated balance sheets of American
Airlines, Inc. as of December 31, 1993 and 1992, and the related consolidated
statements of operations, stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1993. Our audits also included
the financial statement schedules listed in Item 14(a) on page 40. These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Airlines, Inc. at December 31, 1993 and 1992, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
As discussed in Notes 7 and 8 to the consolidated financial statements,
effective January 1, 1992, the Company changed its method of accounting for
income taxes and postretirement benefits other than pensions.
ERNST & YOUNG
2121 San Jacinto
Dallas, Texas 75201
February 15, 1994
-17-
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AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions)
Year Ended December 31,
-----------------------------------------------------
1993 1992 1991
---------- ---------- ----------
REVENUES
Air Transportation Group:
Passenger $ 12,900 $ 11,895 $ 10,714
Cargo 637 577 474
Other 527 501 362
------------- ------------- ------------
14,064 12,973 11,550
Information Services Group 1,167 1,088 1,011
Less: Intergroup revenues (494) (480) (463)
------------- ------------- ------------
Total operating revenues 14,737 13,581 12,098
------------- ------------- ------------
EXPENSES
Wages, salaries and benefits 4,927 4,690 4,027
Aircraft fuel 1,818 1,862 1,780
Commissions to agents 1,393 1,263 1,116
Depreciation and amortization 1,115 958 823
Other rentals and landing fees 787 764 550
Food service 693 690 620
Aircraft rentals 639 631 577
Maintenance materials and repairs 542 595 592
Other operating expenses 2,259 2,205 1,995
------------- ------------- ------------
Total operating expenses 14,173 13,658 12,080
------------- ------------- ------------
OPERATING INCOME (LOSS) 564 (77) 18
OTHER INCOME (EXPENSE)
Interest income 5 13 31
Interest expense (408) (386) (345)
Interest capitalized 49 98 153
Miscellaneous - net (136) (44) (86)
------------- ------------- ------------
(490) (319) (247)
------------- ------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 74 (396) (229)
Income tax provision (benefit) 51 (122) (64)
------------- ------------- ------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES 23 (274) (165)
CUMULATIVE EFFECT OF ACCOUNTING CHANGES:
Postretirement benefits other than
pensions, net of tax benefit - (593) -
Income taxes - 132 -
------------- ------------- ------------
NET INCOME (LOSS) $ 23 $ (735) $ (165)
============= ============= ============
The accompanying notes are an integral part of these financial statements.
-18-
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AMERICAN AIRLINES, INC.
CONSOLIDATED BALANCE SHEET
(in millions)
December 31,
----------------------------------
1993 1992
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 55 $ 45
Short-term investments of affiliates 514 801
Receivables, less allowance for uncollectible
accounts (1993 - $26; 1992 - $28) 731 742
Receivables from affiliates 223 313
Inventories, less allowance for obsolescence
(1993 - $162; 1992 - $130) 606 621
Deferred income taxes 269 210
Other current assets 130 156
------------- ------------
Total current assets 2,528 2,888
EQUIPMENT AND PROPERTY
Flight equipment, at cost 12,142 10,571
Less accumulated depreciation 2,950 2,699
------------- ------------
9,192 7,872
Purchase deposits for flight equipment 313 783
------------- ------------
9,505 8,655
Other equipment and property, at cost 3,713 3,762
Less accumulated depreciation 1,749 1,676
------------- ------------
1,964 2,086
------------- ------------
11,469 10,741
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment 1,822 1,833
Other equipment and property 245 237
------------- ------------
2,067 2,070
Less accumulated amortization 707 616
------------- ------------
1,360 1,454
OTHER ASSETS
Route acquisition costs, less accumulated amortization
(1993 - $95; 1992 - $66) 1,061 1,090
Airport operating and gate lease rights, less accumulated amortization
(1993 - $56; 1992- $40) 356 372
Prepaid pension cost 398 347
Other 577 550
------------- ------------
2,392 2,359
------------- ------------
TOTAL ASSETS $ 17,749 $ 17,442
============= ============
The accompanying notes are an integral part of these financial statements.
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AMERICAN AIRLINES, INC.
CONSOLIDATED BALANCE SHEET
(in millions, except shares and par value)
December 31,
----------------------------------
1993 1992
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 857 $ 889
Payables to affiliates 479 827
Accrued salaries and wages 467 436
Accrued liabilities 814 819
Air traffic liability 1,461 1,524
Short-term borrowings - 380
Current maturities of long-term debt 70 138
Current obligations under capital leases 92 84
------------- ------------
Total current liabilities 4,240 5,097
LONG-TERM DEBT, LESS CURRENT MATURITIES 1,453 1,282
LONG-TERM DEBT DUE TO PARENT 4,045 3,236
OBLIGATIONS UNDER CAPITAL LEASES,
LESS CURRENT OBLIGATIONS 1,792 1,866
OTHER LIABILITIES AND CREDITS
Deferred income taxes 338 285
Deferred gains 784 814
Postretirement benefits 1,085 1,003
Other liabilities and deferred credits 844 712
------------- ------------
3,051 2,814
COMMITMENTS, LEASES AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock - $1 par value;
1,000 shares authorized, issued and outstanding - -
Additional paid-in capital 1,699 1,699
Retained earnings 1,469 1,448
------------- ------------
3,168 3,147
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 17,749 $ 17,442
============= =============
The accompanying notes are an integral part of these financial statements.
-20-
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AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Year Ended December 31,
-------------------------------------------------------
1993 1992 1991
------------ ------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 23 $ (735) $ (165)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,115 958 823
Deferred income taxes (4) (26) (95)
Provisions for losses 125 - 68
Cumulative effect of accounting changes - 461 -
Proceeds from transfer of receivables - - 300
Change in assets and liabilities:
Decrease (increase) in receivables 101 (126) (247)
Increase in inventories (6) (72) (48)
Decrease in accounts payable
and accrued liabilities (6) (21) (1)
Increase (decrease) in payables to affiliates (60) 1 23
Increase (decrease) in air traffic liability (64) 366 40
Other, net 78 37 (88)
------------- ------------ ------------
Net cash provided by operating activities 1,302 843 610
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (1,873) (3,157) (3,311)
Acquisitions of routes and other related assets - (36) (744)
Net decrease (increase) in short-term investments 287 334 (312)
Funds transferred from (to) affiliates for investment, net (287) (334) 312
Other, net 35 34 44
------------- ------------ ------------
Net cash used for investing activities (1,838) (3,159) (4,011)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from:
Issuance of long-term debt 330 684 244
Sale-leaseback transactions - 610 1,545
Net short-term borrowings (repayments)
with maturities of 90 days or less (350) 18 (246)
Other short-term borrowings - 104 425
Payments on other short-term borrowings (30) (153) (978)
Payments on long-term debt and capital lease obligations (294) (282) (75)
Funds transferred from affiliates used by American, net 809 1,286 2,425
Other, net 81 7 43
------------- ------------ ------------
Net cash provided by financing activities 546 2,274 3,383
------------- ------------ ------------
Net increase (decrease) in cash 10 (42) (18)
Cash at beginning of year 45 87 105
------------- ------------ ------------
Cash at end of year $ 55 $ 45 $ 87
============= ============ ============
The accompanying notes are an integral part of these financial statements.
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AMERICAN AIRLINES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(in millions)
Additional
Common Paid-in Retained
Stock Capital Earnings Total
------------ ------------ ------------ ------------
Balance at January 1, 1991 $ - $ 699 $ 2,339 $ 3,038
Net loss - - (165) (165)
Capital contribution - 1,000 - 1,000
Other - - (1) (1)
---------- ------------ ------------ ------------
Balance at December 31, 1991 - 1,699 2,173 3,872
Net loss - - (735) (735)
Other - - 10 10
---------- ------------ ------------ ------------
Balance at December 31, 1992 - 1,699 1,448 3,147
Net income - - 23 23
Other - - (2) (2)
---------- ------------ ------------ ------------
Balance at December 31, 1993 $ - $ 1,699 $ 1,469 $ 3,168
========== ============ ============ ============
The accompanying notes are an integral part of these financial statements.
-22-
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF CONSOLIDATION American Airlines, Inc. (American or the Company) is a
wholly-owned subsidiary of AMR Corporation (AMR). The consolidated financial
statements include the accounts of American and its wholly-owned subsidiaries.
All significant intercompany transactions have been eliminated. Certain
amounts from prior years have been reclassified to conform with the 1993
presentation.
TRANSACTIONS WITH AFFILIATES Transactions with affiliates are on a basis
determined by the parties.
American invests funds of affiliates in a combined short-term investment
portfolio and passes through interest income on such funds at the average rate
earned on the portfolio. To the extent funds transferred to American exceed
the invested portfolio, such amounts are converted to Long-Term Debt due to
Parent under a subordinated note agreement with AMR. To the extent American
invests its excess cash flows in the short-term investment portfolio, Long-Term
Debt due to Parent is reduced with a corresponding increase in Payables to
Affiliates. The subordinated promissory note bears interest based on the
London Interbank Offered Rate (LIBOR), 3.5 percent at December 31, 1993, and
the interest rate is reset every six months. The note is due May 1, 2001;
however, American may prepay the note without penalty at any time. Under the
provisions of this note agreement, approximately $3.86 billion and $3.06
billion was included in Long-Term Debt due to Parent as of December 31, 1993
and 1992, respectively.
Payables to Affiliates includes approximately $514 million and $801
million at December 31, 1993 and 1992, respectively, representing funds of
affiliates transferred to American for investment and invested in the
portfolio.
Interest paid to affiliates in addition to interest income passed through
on invested funds was approximately $132 million, $106 million and $93 million
for the years ended December 31, 1993, 1992 and 1991, respectively.
Interest expense includes $16 million for the years ended December 31,
1993 and 1992, and $15 million for the year ended December 31, and 1991,
relating to debentures held by AMR calculated at a 9.03 percent effective
interest rate.
During 1991, AMR contributed $1.0 billion of capital to American by
reducing American's obligation to AMR for invested funds.
American paid affiliates $138 million, $110 million and $73 million in
1993, 1992 and 1991, respectively, for ground handling services provided at
selected airports, data processing services, consulting services and investment
management and advisory services with respect to short-term investments and the
assets of its retirement benefit plans.
American issues tickets for flights on AMR Eagle. As a result, the
revenue collected for such tickets is prorated between American and AMR Eagle
based on the segments flown by the respective carriers. In addition, in 1993,
1992 and 1991, American paid fees of $261 million, $213 million and $111
million, respectively, included in Other Operating Expenses, to AMR Eagle
primarily for passengers connecting with American flights.
American paid commissions of $4 million and $19 million to AMR Foreign
Sales Corporation, Ltd., a subsidiary of AMR, in 1992 and 1991, respectively,
for arranging certain aircraft sale and leaseback transactions. The
commissions were recognized as adjustments to the deferred gains on these
sales.
American charges AMR affiliates for the use of its communications,
accounting and information processing systems, as well as for other services.
American recognizes compensation expense associated with certain AMR
common stock-based awards for employees of American.
-23-
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INVENTORIES Spare parts, materials and supplies relating to flight equipment
are carried at average cost and are expensed when used in operations.
Allowances for obsolescence are provided, over the estimated useful life of the
related aircraft and engines, for spare parts expected to be on hand at the
date aircraft are retired from service.
EQUIPMENT AND PROPERTY The provision for depreciation of operating equipment
and property is computed on the straight-line method applied to each unit of
property, except that spare assemblies are depreciated on a group basis. The
depreciable lives and residual values used for the principal depreciable asset
classifications are:
Residual
Depreciable Life Value
------------------------------- ---------
Airbus A300-600R 20 years 5%
Boeing 727-200 * 5%
Boeing 757-200, 767-200 and 767-300 20 years 5%
Fokker 100 20 years 5%
DC-10-10 and DC-10-30** December 31, 1999*** 5%
MD-11 and MD-80 20 years 5%
Major rotable parts, avionics and assemblies Life of equipment to which None
applicable
Improvements to leased flight equipment Term of lease None
Buildings and improvements (principally on 10-30 years or term of lease None
leased land)
Other equipment 3-20 years None
* In connection with a review of its fleet plan, American changed,
effective October 1, 1991, the estimated useful lives of its Boeing
727-200 aircraft and engines from a common retirement date of December
31, 1994, to projected retirement dates by aircraft, which results in
an average depreciable life of approximately 21 years.
** During 1993, American announced its intention to retire a total of 36
McDonnell Douglas DC-10-10 and six McDonnell Douglas DC-10-30
aircraft. At December 31, 1993, 21 of those aircraft had been
grounded.
*** Approximate common retirement date.
Equipment and property under capital leases are amortized over the
term of the leases and such amortization is included in depreciation and
amortization. Lease terms vary but are generally 10 to 25 years for aircraft
and 7 to 40 years for other leased equipment and property.
MAINTENANCE AND REPAIR COSTS Maintenance and repair costs for owned and
leased flight equipment are charged to operating expense as incurred.
INTANGIBLE ASSETS The Company continually evaluates intangible assets to
determine whether current events and circumstances warrant adjustment of the
carrying values or amortization periods.
Route acquisition costs and airport operating and gate lease rights represent
the purchase price attributable to route authorities, airport take-off and
landing slots and airport gate leasehold rights acquired and are being
amortized on a straight-line basis over 10 to 40 years.
PASSENGER REVENUES Passenger ticket sales are initially recorded as a current
liability. Revenue derived from the sale is recognized at the time
transportation is provided.
FREQUENT FLYER PROGRAM The estimated incremental cost of providing free
travel awards is accrued when such award levels are reached. Revenues received
for miles sold to others participating in the program are deferred and
recognized over a period approximating the time transportation is provided.
INCOME TAXES AMR and its eligible subsidiaries, including American, file a
consolidated federal income tax return. Deferred income taxes reflect the net
tax effects of temporary differences between the financial reporting carrying
amounts of assets and liabilities and the income tax amounts.
-24-
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DEFERRED GAINS Gains on the sale and leaseback of equipment and property are
deferred and amortized over the terms of the related leases as a reduction of
rent expense.
FOREIGN EXCHANGE CONTRACTS American enters into foreign exchange contracts as
a hedge against certain amounts payable or receivable in foreign currencies.
Market value gains or losses are recognized and offset against foreign exchange
gains or losses on those obligations or receivables.
FUEL SWAP CONTRACTS American enters into swap contracts to hedge against
market price fluctuations of jet fuel. Gains or losses on these contracts are
included in fuel expense when the underlying fuel being hedged is used.
STATEMENT OF CASH FLOWS Short-term investments, without regard to remaining
maturity at acquisition, are not considered as cash equivalents for purposes of
the statement of cash flows.
2. SHORT-TERM INVESTMENTS
Short-term investments consisted of (in millions):
December 31,
----------------------------------
1993 1992
------------ ------------
Corporate notes $ 222 $ -
U.S. Treasury notes 150 704
Other debt securities 142 97
------------- ------------
$ 514 $ 801
============= ============
The fair value of short-term investments at December 31, 1993, by
contractual maturity was (in millions):
Due in one year or less $ 166
Due after one year through three years 122
Due after three years 226
-------------
$ 514
=============
All short-term investments were classified as available-for-sale and
stated at fair value.
3. COMMITMENTS AND CONTINGENCIES
The Company has on order 36 jet aircraft - 16 Boeing 757-200s, seven
Boeing 767-300ERs and 13 Fokker 100s scheduled for delivery through 1996.
Deposits of $313 million have been made toward the purchase of these aircraft.
Future payments, including estimated amounts for price escalation through
anticipated delivery dates for these aircraft and related equipment will be
approximately $600 million in 1994, $450 million in 1995 and $150 million in
1996, a portion of which is payable in foreign currencies.
In addition to these commitments for aircraft, the Company has authorized
expenditures of approximately $1.1 billion for aircraft modifications,
renovations of, and additions to, airport and office facilities and various
other equipment and assets. American expects to spend approximately $750
million of this amount in 1994.
American has included an event risk covenant in approximately $2.9
billion of lease agreements. The covenant permits the holders of such
instruments to receive a higher rate of return (between 50 and 700 basis points
above the stated rate) if a designated event, as defined, should occur and the
credit rating of the debentures or the debt obligations underlying the lease
agreements is downgraded below certain levels.
-25-
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3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In July 1991, American entered into a five-year agreement whereby
American transfers, on a continuing basis and with recourse to the receivables,
an undivided interest in a designated pool of receivables. Undivided interests
in new receivables are transferred daily as collections reduce previously
transferred receivables. At December 31, 1993 and 1992, Receivables are
presented net of approximately $300 million of such transferred receivables.
American maintains an allowance for uncollectible receivables based upon
expected collectibility of all receivables, including the receivables
transferred.
Special facility revenue bonds have been issued by certain
municipalities, primarily to purchase equipment and improve airport facilities
which are leased by American. In certain cases, the bond issue proceeds were
loaned to American and are included in Long-Term Debt. Certain bonds have
rates that are periodically reset and are remarketed by various agents. In
certain circumstances, American may be required to purchase up to $413 million
of the special facility revenue bonds prior to maturity, in which case American
has the right to resell the bonds or to use the bonds to offset its lease or
debt obligations. American may borrow the purchase price of these bonds under
standby letter-of-credit agreements. At American's option, these letters of
credit are secured by funds held by bond trustees and by approximately $448
million of short-term investments.
4. LEASES
American leases various types of equipment and property, including
aircraft, passenger terminals, equipment and various other facilities. The
future minimum lease payments required under capital leases, together with the
present value of net minimum lease payments, and future minimum lease payments
required under operating leases that have initial or remaining non-cancelable
lease terms in excess of one year as of December 31, 1993, were (in millions):
Capital Operating
Year Ending December 31, Leases Leases
------------- ------------
1994 $ 223 $ 916
1995 236 900
1996 223 886
1997 205 902
1998 200 913
1999 and subsequent 2,065 16,190
------------- ------------
3,152 * $ 20,707 *
============
Less amount representing interest 1,268
-------------
Present value of net minimum lease payments $ 1,884 **
=============
* Future minimum payments required under capital leases and operating
leases include $384 million and $6.0 billion, respectively, guaranteed
by AMR relating to special facility revenue bonds issued by
municipalities.
** The present value of future minimum lease payments includes $132 million
guaranteed by American.
At December 31, 1993, the Company had 235 jet aircraft under operating
leases and 80 jet aircraft under capital leases.
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4. LEASES (CONTINUED)
The aircraft leases can generally be renewed at rates based on fair
market value at the end of the lease term for one to five years. Most aircraft
leases have purchase options at or near the end of the lease term at fair
market value, but generally not to exceed a stated percentage of the defined
lessor's cost of the aircraft. Of the aircraft American has under operating
leases, 15 Boeing 767-300ERs are cancelable upon 30 days' notice during the
initial 10-year lease term. At the end of that term in 1998, the leases can be
renewed for periods ranging from 10 to 12 years. In 1993, American agreed to
forfeit its right to cancel leases for 25 Airbus A300-600R aircraft upon 30
days' notice and extended the terms of the leases for periods ranging from 18
to 19 years.
Rent expense, excluding landing fees, was $1.2 billion, $1.1 billion and
$925 million for the years ended December 31, 1993, 1992 and 1991,
respectively.
5. INDEBTEDNESS
Short-term borrowings at December 31, 1992, consisted of commercial paper.
Long-term debt (excluding amounts maturing within one year) consisted of
(in millions):
December 31,
----------------------------------
1993 1992
------------- ------------
7.67% - 9.60% notes due through 2021 $ 697 $ 654
Variable rate indebtedness due through 2024
(2.23% - 4.50% at December 31, 1993) 492 232
7.10% - 9.25% bonds due through 2031 181 181
Other 83 215
------------- ------------
Long-term debt, less current maturities $ 1,453 $ 1,282
============= ============
Maturities of long-term debt (including sinking fund requirements) for
the next five years are: 1994 - $70 million; 1995 - $44 million; 1996 - $47
million; 1997 - $44 million; 1998 - $53 million.
Certain debt is secured by aircraft, engines, equipment and other assets
having a net book value of approximately $1.5 billion.
American has a $500 million short-term credit facility agreement which
expires in 1995 and a $1.0 billion credit facility expiring in 1994. American
expects to replace the $1.0 billion credit facility with a $750 million credit
agreement. American also has $335 million available under a multiple option
facility which expires in 1995. Interest on these agreements is calculated at
floating rates based upon LIBOR. At December 31, 1993, no borrowings were
outstanding and approximately $1.8 billion was available under these
facilities. As of February 15, 1994, borrowings of $400 million were
outstanding under the credit facilities.
American's debt and credit facility agreements contain certain
restrictive covenants, including a cash flow coverage test, a minimum net worth
requirement and limitations on indebtedness and the declaration of dividends on
shares of its capital stock. At December 31, 1993, under the most restrictive
provisions of those agreements, approximately $1.3 billion of American's
retained earnings were available for payment of cash dividends to AMR.
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6. FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt were estimated using
quoted market prices, where available. For long-term debt not actively traded,
fair values were estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. The fair values of the Company's long-term debt, including
current maturities, at December 31, 1993, were (in millions):
Carrying Fair
Value Value
------------- ------------
Long-term debt due to Parent $ 4,045 $ 3,722
7.67% - 9.60% notes due through 2021 706 766
Variable rate indebtedness due through 2024
(2.23% - 4.50% at December 31, 1993) 507 507
7.10% - 9.25% bonds due through 2031 181 197
Other 129 119
------------- ------------
$ 5,568 $ 5,311
============= =============
During 1993, American entered into interest-rate swap agreements with a
number of major financial institutions. Under these swap agreements, American
receives fixed-rate payments (4.25% to 6.44%) in exchange for floating-rate
payments (3.25% to 4.00% at December 31, 1993) on a total notional principal
amount of $1.4 billion. The swap agreements expire over three to 15 years.
American is exposed to credit risk in the event of default by the
counterparties; however, American does not anticipate such default. Under
agreements with certain counterparties, American or the counterparty may be
required to post collateral based on certain credit limits and ratings. As of
December 31, 1993, no collateral was required under these agreements. The fair
value of the Company's interest-rate swap agreements is estimated based on the
market prices for similar agreements. The net fair values of the Company's
interest rate swap agreements at December 31, 1993, representing the estimated
net amount the Company would have to pay to terminate the agreements, was $6
million.
To hedge against the risk of future currency exchange rate fluctuations
on certain lease obligations and related interest payable in foreign
currencies, American has entered into various foreign currency exchange
agreements. Changes in the value of the agreements due to exchange rate
fluctuations are offset by changes in the value of the foreign currency
denominated lease obligations translated at the current rate. In the event of
default by the counterparties, American is exposed to risk for periodic
settlements due under the agreements; however, American does not anticipate
such default. At December 31, 1993, American had agreements to purchase 20.3
billion Japanese yen at rates ranging from 104.50 to 137.26 yen per U.S.
dollar. The fair value of the Company's foreign currency exchange agreements
is estimated based on quoted market prices of comparable agreements. The net
fair value of the Company's foreign currency exchange agreements at December
31, 1993, representing the estimated net amount that American would receive to
terminate the agreements, was approximately $18 million.
American has sold options enabling two major banks to put Dutch guilders
to American at a fixed rate of guilders per U.S. dollar at periodic intervals
through 1994. At December 31, 1993, approximately 680 million guilders remain
subject to the put options. The market risk associated with the put options is
offset by American's ability, under a purchase agreement, to pay for certain
equipment in U.S. dollars or, at American's option, in Dutch guilders, at the
same exchange rate as the put options. At dates where American does not have a
liability under the equipment purchase agreement due to changes in delivery
schedules, American has purchased options to put approximately 50 million
guilders to a major bank at the same rate of exchange. American's credit risk
is limited to failure of the manufacturer to perform under the purchase
agreement or the failure of the bank to perform under the purchased put option
agreement; however, American does not anticipate non-performance. The proceeds
from the sales of the put options, net of the cost of the put options
purchased, were deferred and are being offset against the cost of the equipment
acquired under the purchase agreement. The net fair value of these guilder put
options was de minimis at December 31, 1993.
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7. INCOME TAXES
American, as a wholly-owned subsidiary, is included in AMR's consolidated
tax return. American's provision (benefit) for income taxes has been computed
on the basis that American files separate consolidated income tax returns with
its subsidiaries. Effective January 1, 1992, AMR adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," (FAS
109), changing its method of accounting for income taxes. American was
required to simultaneously adopt the methodology used in FAS 109 in accordance
with its tax sharing agreement with AMR. As permitted under the new rules,
prior years' financial statements have not been restated to reflect the change
in accounting method. The cumulative effect of adopting FAS 109 decreased the
net loss for the year ended December 31, 1992, by $132 million
The significant components of the income tax provision (benefit) were (in
millions):
Year Ended December 31,
------------------------------------------------------
1993 1992 1991
------------ ------------ -----------
Current $ 55 $ (96) $ 31
Deferred 204 195 (95)
Benefit of operating loss carryforwards (208) (221) -
------------ ------------ -----------
$ 51 $ (122) $ (64)
============ ============ ===========
The income tax provision (benefit) includes a provision of $43 million in
1993 and benefit of $114 million and $67 million in 1992 and 1991,
respectively, for federal taxes.
In addition, a deferred tax benefit of $320 million was recognized in the
year ended December 31, 1992, upon adoption of Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions" (FAS 106).
The income tax provision (benefit) differed from amounts computed at the
statutory federal income tax rate as follows (in millions):
Year Ended December 31,
-------------------------------------------------------
1993 1992 1991
------------ ------------ -----------
Statutory income tax benefit $ 26 $ (135) $ (78)
Foreign tax credit carryforwards - (8) -
Valuation allowance (1) 8 -
Amortization 1 14 9
Meal expense 8 7 6
Effect of rate change on deferred taxes 10 - -
Other, net 7 (8) (1)
------------ ----------- -----------
Income tax provision (benefit) $ 51 $ (122) $ (64)
============ =========== ===========
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7. INCOME TAXES (CONTINUED)
The components of American's deferred tax assets and liabilities were (in
millions):
December 31,
----------------------------------
1993 1992
------------- ------------
Deferred tax assets:
Postretirement benefits other than pensions $ 379 $ 352
Gains from lease transactions 285 306
Alternative minimum tax credit carryforwards 337 286
Operating loss carryforwards 429 221
Other 529 465
Valuation allowance (7) (8)
------------- ------------
Total deferred tax assets 1,952 1,622
------------- ------------
Deferred tax liabilities:
Accelerated depreciation and amortization (1,697) (1,361)
Pensions (140) (141)
Other (184) (194)
------------- ------------
Total deferred tax liabilities (2,021) (1,697)
------------- ------------
Net deferred tax liability $ (69) $ (75)
============= ============
At December 31, 1993, American had available for federal income tax
purposes approximately $337 million of alternative minimum tax credit
carryforwards available for an indefinite period, and approximately $1.2
billion of net operating loss carryforwards for regular tax purposes, with $640
million expiring in 2007 and $585 million expiring in 2008.
The sources of deferred income taxes and the tax effect of each for the
year ended December 31, 1991, before American adopted FAS 109, were (in
millions):
Accelerated depreciation and amortization $ 164
Alternative minimum tax (124)
Gains from lease transactions (109)
Revenue recognized in a different year for tax
and financial reporting purposes (25)
Other (1)
------------
$ (95)
============
8. RETIREMENT BENEFITS
Substantially all employees of American are eligible to participate in
pension plans. The defined benefit plans provide benefits for participating
employees based on years of service and average compensation for a specified
period of time before retirement. Airline pilots and flight engineers also
participate in defined contribution plans for which company contributions are
determined as a percentage of participant compensation.
Costs for all pension plans were approximately $288 million, $247 million
and $187 million in 1993, 1992 and 1991, respectively.
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8. RETIREMENT BENEFIT PLANS (CONTINUED)
Net periodic pension cost of the defined benefit plans was (in millions):
Year Ended December 31,
-------------------------------------------------------
1993 1992 1991
------------ ------------ ------------
Service cost - benefits earned during the period $ 167 $ 152 $ 101
Interest cost on projected benefit obligation 285 268 238
Return on assets (638) (229) (452)
Net amortization and deferral 356 (52) 210
------------ ------------- ------------
Net periodic pension cost $ 170 $ 139 $ 97
============ ============= ============
The funded status and actuarial present value of benefit obligations of
the defined benefit plans were (in millions):
December 31,
----------------------------------
1993 1992
------------ ------------
Plan assets at fair value $ 3,550 $ 2,928
Accumulated benefit obligation, including vested
benefits of $3,142 and $2,615, respectively 3,283 2,709
Effect of projected future salary increases 721 659
------------- -----------
Projected benefit obligation 4,004 3,368
------------- -----------
Plan assets less than projected benefit obligation (454) (440)
Unrecognized net loss 957 845
Unrecognized prior service cost (35) 23
Unrecognized transition asset (70) (81)
------------- -----------
Prepaid pension cost* $ 398 $ 347
============= ===========
* American's funding policy is to make contributions equal to, or in
excess of, the minimum funding requirements of the Employee Retirement
Income Security Act of 1974.
Plan assets consist primarily of government and corporate debt
securities, marketable equity securities, and money market fund and mutual fund
shares, of which approximately $99 million and $86 million of plan assets at
December 31, 1993 and 1992, respectively, were invested in shares of mutual
funds managed by a subsidiary of AMR.
The projected benefit obligation was calculated using weighted average
discount rates of 7.50%, 9.00% and 9.25% at December 31, 1993, 1992 and 1991,
respectively; rates of increase for compensation of 4.40% at December 31, 1993,
and 4.90% at December 31, 1992 and 1991; and the 1983 Group Annuity Mortality
Table. The weighted average expected long-term rate of return on assets was
10.50% in 1993 and 11.25% in 1992 and 1991. The vested benefit obligation and
plan assets at fair value at December 31, 1993, for plans whose benefits are
guaranteed by the Pension Benefit Guaranty Corporation are $3.1 billion and
$3.5 billion, respectively.
Pension costs for defined contribution plans were approximately $118
million, $108 million and $90 million in 1993, 1992 and 1991, respectively.
-31-
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8. RETIREMENT BENEFITS (CONTINUED)
In addition to pension benefits, other postretirement benefits, including
certain health care and life insurance benefits, are also provided to retired
employees. The amount of health care benefits is limited to lifetime maximums
as outlined in the plan. Substantially all employees of American and employees
of certain other subsidiaries may become eligible for these benefits if they
satisfy eligibility requirements during their working lives.
Effective January 1, 1990, American's non-union employees that are
covered by the health care and life insurance plan, as well as employees who
are represented by the Transport Workers Union, began making contributions
toward funding a portion of their retiree health care benefits during their
working lives. American funds benefits as incurred and began, effective
January 1993, to match employee prefunding.
Effective January 1, 1992, American adopted FAS 106, changing the method
of accounting for these benefits. Prior to 1992, other postretirement benefit
expense was recognized by expensing health care claims incurred and annual life
insurance premiums. Such expense was $31 million in 1991 and has not been
restated. The cumulative effect of adopting FAS 106 as of January 1, 1992, was
a charge of $913 million ($593 million after tax). This change also increased
other postretirement benefit expense by approximately $89 million ($57 million
after tax) for the year ended December 31, 1992.
Net other postretirement benefit cost was (in millions):
Year Ended December 31,
----------------------------------
1993 1992
------------- ------------
Service cost - benefits earned during the period $ 47 $ 42
Interest cost on accumulated other postretirement
benefit obligation 86 83
Net amortization and deferral (4) -
------------- ------------
Net other postretirement benefit cost $ 129 $ 125
============= ============
The funded status of the plan, reconciled to the accrued other
postretirement benefit cost recognized in American's balance sheet, was (in
millions):
December 31,
----------------------------------
1993 1992
------------- ------------
Retirees $ 381 $ 266
Fully eligible active plan participants 306 293
Other active plan participants 518 425
------------- ------------
Accumulated other postretirement benefit obligation 1,205 984
Plan assets at fair value 7 -
------------- ------------
Accumulated other postretirement benefit obligation
in excess of plan assets 1,198 984
Unrecognized net loss (207) (31)
Unrecognized prior service cost 95 50
------------- ------------
Accrued other postretirement benefit cost $ 1,085 $ 1,003
============= ============
Plan assets consist primarily of shares of a mutual fund managed by a
subsidiary of AMR.
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8. RETIREMENT BENEFITS (CONTINUED)
For 1993, future benefit costs were estimated assuming per capita cost of
covered medical benefits would increase at an 11% annual rate, decreasing
gradually to a 4% annual growth rate in 2000 and thereafter. A 1% increase in
this annual trend rate would have increased the accumulated other
postretirement benefit obligation at December 31, 1993, by approximately $118
million and 1993 other postretirement benefit cost by approximately $17
million. In 1992, future benefit costs were estimated assuming per capita cost
of covered medical benefits would increase at a 12% annual rate, decreasing
gradually to a 5% annual growth rate in 1999 and thereafter. The weighted
average discount rate used in estimating the accumulated other postretirement
benefit obligation was 7.50% and 9.00% at December 31, 1993 and 1992,
respectively.
9. REVENUE AND OTHER EXPENSE ITEMS
Revenues for the second quarter of 1993 include a $115 million positive
adjustment resulting from a change in estimate relating to certain earned
passenger revenues.
Miscellaneous - net in 1993 includes a $125 million charge related to the
retirement of 31 McDonnell Douglas DC-10 aircraft. The charge represents the
Company's best estimate of the expected loss based upon the anticipated method
of disposition. However, should the ultimate method of disposition differ, the
actual loss could be different than the amount estimated. Miscellaneous - net
for 1991 includes a provision of $42 million for the anticipated cost of lease
terminations and aircraft dispositions relating to the retirement of American's
Boeing 737 and British Aerospace BAe 146 aircraft fleets. Also included in
1991 is a $26 million charge for the retirement of American's Boeing 747SP
aircraft.
10. FOREIGN OPERATIONS
American conducts operations in various foreign countries. American's
operating revenues from foreign operations were (in millions):
Year Ended December 31,
-------------------------------------------------------
1993 1992 1991
------------ ------------- ------------
Latin America $ 1,888 $ 1,644 $ 1,117
Europe 1,659 1,692 1,282
Pacific 362 343 270
------------ ------------- ------------
Foreign operating revenues $ 3,909 $ 3,679 $ 2,669
============ ============= ============
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11. OTHER FINANCIAL INFORMATION
American's operations fall within two industry segments: the Air
Transportation Group and the Information Services Group. For a description of
each of these groups, refer to Business on page 1.
Following are financial highlights for these two groups for each of the
three years in the period ended December 31, 1993 (in millions):
Year Ended December 31,
-------------------------------------------------------
1993 1992 1991
------------- ------------- ------------
Air Transportation Group:
Revenues $ 14,064 $ 12,973 $ 11,550
Operating profit (loss) 307 (320) (198)
Depreciation and amortization 949 797 671
Capital expenditures, including route
acquisition costs 1,704 3,070 3,891
Information Services Group:
Revenues $ 1,167 $ 1,088 $ 1,011
Operating profit 257 243 216
Depreciation and amortization 166 161 152
Capital expenditures 169 123 164
The adoption of FAS 106 reduced the 1992 operating income of the Air
Transportation Group and the Information Services Group by $85 million and $4
million, respectively.
Intergroup revenues consist of revenues earned by the Information
Services Group from the Air Transportation Group.
Identifiable assets of the industry segments were (in millions):
December 31,
-------------------------------------------------------
1993 1992 1991
------------- ------------- ------------
Air Transportation Group $ 17,024 $ 16,724 $ 14,693
Information Services Group 446 436 487
General corporate and other 279 282 -
------------- ------------- ------------
Total assets $ 17,749 $ 17,442 $ 15,180
============= ============= ============
Identifiable assets are gross assets used by a business segment,
including an allocated portion of assets used jointly by more than one segment.
General corporate and other consists primarily of income tax assets.
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11. OTHER FINANCIAL INFORMATION (CONTINUED)
Supplemental disclosures of cash flow information and non-cash activities
(in millions):
Year Ended December 31,
-------------------------------------------------------
1993 1992 1991
------------- ------------- ------------
Cash payment (refunds) for:
Interest (net of interest capitalized) $ 356 $ 231 $ 207
Income taxes (8) (10) 37
Financing activities not affecting cash:
Capital lease obligations incurred $ - $ 264 $ 195
Installment promissory notes issued for assets - 162 -
Payable to Parent converted into:
Long-term debt - - 1,775
Capital contribution - - 1,000
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 1993 and 1992 (in
millions):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
1993
Operating revenues (Note 9) $ 3,563 $ 3,952 $ 3,912 $ 3,310
Operating income (loss) 85 328 326 (175)
Net earnings (loss) (6) 67 129 (167)
1992*
Operating revenues $ 3,302 $ 3,384 $ 3,520 $ 3,375
Operating income (loss) 82 24 (28) (155)
Earnings (loss) before
cumulative effect of
accounting changes 14 (52) (69) (167)
Net loss (447) (52) (69) (167)
* Results for the first quarter of 1992 have been restated for the
cumulative effect of the adoption of FAS 106 and FAS 109 which
resulted in a net charge of $461 million after tax. Results for the
first three quarters of 1992 have also been restated by the ratable
portion of the $89 million current year effect of the accounting
change for FAS 106, net of tax benefit.
Results for the second quarter of 1993 include a $125 million charge
related to the retirement of 31 McDonnell Douglas DC-10 aircraft. Results for
the fourth quarter of 1993 reflect the adverse impact of a five-day strike by
American's flight attendants' union and a $25 million charge for the cost of
severance of certain employees.
Results for the second quarter of 1992 include a $14 million provision
for a cash payment representing American's share of a multi-carrier antitrust
settlement. Results for the fourth quarter of 1992 include a $22 million
charge for the cost of severance of certain employees.
-35-
37
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted under the reduced disclosure format pursuant to General Instruction
J(2)(c) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Omitted under the reduced disclosure format pursuant to General Instruction
J(2)(c) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted under the reduced disclosure format pursuant to General Instruction
J(2)(c) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted under the reduced disclosure format pursuant to General Instruction
J(2)(c) of Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The financial statements listed in the accompanying index to
financial statements and schedules are filed as part of this
report.
(2) The schedules listed in the accompanying index to financial
statements and schedules are filed as part of this report.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
(Where the amount of securities authorized to be issued under any
of American's long-term debt agreements does not exceed ten
percent of American's assets, pursuant to paragraph (b)(4) of Item
601 of Regulation S-K, in lieu of filing such as an exhibit,
American hereby agrees to furnish to the Commission upon request a
copy of any agreement with respect to such long-term debt.)
EXHIBIT
3(a) Composite of the Certificate of Incorporation of American,
incorporated by reference to Exhibit 3(a) to American's
report on Form 10-K for the year ended December 31, 1982,
file number 1-2691.
3(b) Amended Bylaws of American, incorporated by reference to
Exhibit 3(b) to American's report on Form 10-K for the
year ended December 31, 1990, file number 1-2691.
10(a) Purchase Agreement, dated as of February 12, 1979, between
American and the Boeing Company, relating to the purchase
of Boeing Model 767-323 aircraft, incorporated by
reference to Exhibit 10(b)(3) to American's Registration
Statement No. 2-76709.
10(b) Description of American's Split Dollar Insurance Program,
dated December 28, 1977, incorporated by reference to
Exhibit 10(c)(1) to American's Registration Statement No.
2-76709.
-36-
38
10(c) American's 1992 Incentive Compensation Plan.
10(d) 1979 American Airlines (AMR) Stock Option Plan, as
amended, incorporated by reference to Exhibit 10(d) to
American's report on Form 10-K for the year ended December
31, 1982, file number 1-2691.
10(e) 1979 American Airlines (AMR) Stock Option Plan, as
amended, incorporated by reference to Exhibit 10(e) to
American's report on Form 10-K for the year ended December
31, 1982, file number 1-2691.
10(f) Form of Stock Option Agreement for Corporate Officers
under the 1979 American Airlines (AMR) Stock Option Plan,
incorporated by reference to Exhibit 10(c)(5) to
American's Registration Statement No. 2-76709.
10(g) Form of Stock Option Agreement under the 1974 and 1979
American Airlines (AMR) Stock Option Plans, incorporated
by reference to Exhibit 10(c)(6) to American's
Registration Statement No. 2-76709.
10(h) Deferred Compensation Agreement, dated April 14, 1973, as
amended March 1, 1975, between American and Robert L.
Crandall, incorporated by reference to Exhibit 10(c)(7) to
American's Registration Statement No. 2-76709.
10(i) Deferred Compensation Agreement, dated October 18, 1972,
as amended March 1, 1975, between American and Gene E.
Overbeck, incorporated by reference to Exhibit 10(c)(9) to
American's Registration Statement No. 2-76709.
10(j) Deferred Compensation Agreement, dated June 3, 1970,
between American and Francis H. Burr, incorporated by
reference to Exhibit 11(d) to American's Registration
Statement No. 2-39380.
10(k) Description of informal arrangement relating to deferral
of payment of directors' fees, incorporated by reference
to Exhibit 10(c)(11) to American's Registration Statement
No. 2-76709.
10(l) Purchase Agreement, dated as of February 29, 1984, between
American and the McDonnell Douglas Corporation, relative
to the purchase of McDonnell Douglas Super 80 aircraft,
incorporated by reference to Exhibit 10(l) to American's
report on Form 10-K for the year ended December 31, 1983,
file number 1-2691.
10(m) Purchase Agreement, dated as of June 27, 1983, between
American and the McDonnell Douglas Corporation, relative
to the purchase of McDonnell Douglas Super 80 aircraft,
incorporated by reference to Exhibit 4(a)(8) to American's
Registration Statement No. 2-84905.
10(n) Form of Executive's Termination Benefits Agreement
incorporated by reference to Exhibit 10(p) to American's
report on Form 10-K for the year ended December 31, 1985,
file number 1-2691.
10(o) Amendment, dated June 4, 1986, to Purchase Agreement in
Exhibit 10(l) above, incorporated by reference to Exhibit
10(l) to American's report on Form 10-K for the year ended
December 31, 1986, file number 1-2691.
10(p) Acquisition Agreement, dated as of March 1, 1987, between
American and Airbus Industrie relative to the lease of
Airbus A300-600R aircraft, incorporated by reference to
Exhibit 10(p) to American's report on Form 10-K for the
year ended December 31, 1986, file number 1-2691.
-37-
39
10(q) Acquisition Agreement, dated as of March 1, 1987, between
American and the Boeing Company relative to the lease of
Boeing 767-323ER aircraft, incorporated by reference to
Exhibit 10(q) to American's report on Form 10-K for the
year ended December 31, 1986, file number 1-2691.
10(r) Acquisition Agreement, dated as of July 21, 1988, between
American and the Boeing Company relative to the purchase
of Boeing Model 757-223 aircraft, incorporated by
reference to Exhibit 10(r) to American's report on Form
10-K for the year ended December 31, 1988, file number
1-2691.
10(s) Acquisition Agreement, dated as of February 4, 1989,
among American and Delta Airlines, Inc. and others
relative to operation of a computerized reservations
system incorporated by reference to Exhibit 10(s) to
American's report on Form 10-K for the year ended December
31, 1988, file number 1-2691.
10(t) Purchase Agreement, dated as of May 5, 1989, between
American and the Boeing Company relative to the purchase
of Boeing 757-223 aircraft, incorporated by reference to
Exhibit 10(t) to American's report on Form 10-K for the
year ended December 31, 1989, file number 1-2691.
10(u) Purchase Agreement, dated as of June 9, 1989, between
American and Fokker Aircraft U. S. A., Inc. relative to
the purchase of Fokker 100 aircraft, incorporated by
reference to Exhibit 10(u) to American's report on Form
10-K for the year ended December 31, 1989, file number
1-2691.
10(v) Purchase Agreement, dated as of June 23, 1989, between
American and the Boeing Company relative to the purchase
of Boeing 767-323ER aircraft, incorporated by reference
to Exhibit 10(v) to American's report on Form 10-K for the
year ended December 31, 1989, file number 1-2691.
10(w) Purchase Agreement, dated as of August 3, 1989, between
American and the McDonnell Douglas Corporation relative to
the purchase of MD-11 aircraft, incorporated by reference
to Exhibit 10(w) to American's report on Form 10-K for the
year ended December 31, 1989, file number 1-2691.
10(x) Amendment, dated as of August 3, 1989, to the Purchase
Agreement in Exhibit 10(l) above, incorporated by
reference to Exhibit 10(x) to American's report on Form
10-K for the year ended December 31, 1989, file number
1-2691.
10(y) Purchase Agreement, dated as of October 25, 1989, between
American and AVSA, S. A. R. L. relative to the purchase of
Airbus A300-600R aircraft, incorporated by reference to
Exhibit 10(y) to American's report on Form 10-K for the
year ended December 31, 1989, file number 1-2691.
10(z) Amendment, dated as of November 16, 1989, to Employment
Agreement among AMR Corporation, American Airlines and
Robert L. Crandall, incorporated by reference to Exhibit
10(z) to American's report on Form 10-K for the year ended
December 31, 1989, file number 1-2691.
10(aa) Management Severance Allowance, dated as of February 23,
1990, for levels 1-4 employees of American Airlines, Inc.,
incorporated by reference to Exhibit 10(aa) to American's
report on Form 10-K for the year ended December 31, 1989,
file number 1-2691.
-38-
40
10(bb) Management Severance Allowance, dated as of February 23,
1990, for level 5 and above employees of American
Airlines, Inc., incorporated by reference to Exhibit
10(bb) to American's report on Form 10-K for the year
ended December 31, 1989, file number 1-2691.
10(cc) Amendment, dated as of December 3, 1990, to Employment
Agreement among AMR Corporation, American Airlines and
Robert L. Crandall incorporated by reference to Exhibit
10(cc) to American's report on Form 10-K for the year
ended December 31, 1990, file number 1-2691.
10(dd) Amendment, dated as of May 1, 1992, to Employment
Agreement among American, American Airlines and Robert L.
Crandall incorporated by reference to Exhibit 10(dd) to
American's report on Form 10-Q for the period ended June
30, 1992, file number 1-2691.
12 Computation of ratio of earnings to fixed charges for the
years ended December 31, 1989, 1990, 1991, 1992 and 1993.
19 The 1974 and 1979 American Airlines (AMR) Stock Option
plans as amended March 16, 1983, incorporated by reference
to Exhibit 19 to American's report on Form 10-K for the
year ended December 31, 1983, file number 1- 2691. Refer
to Exhibits 10(d) and 10(e).
23 Consent of Independent Auditors appears on page 41 hereof.
(b) Reports on Form 8-K:
None.
-39-
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AMERICAN AIRLINES, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
COVERED BY REPORT OF INDEPENDENT AUDITORS
(ITEM 14(A))
Page
------
FINANCIAL STATEMENTS
Report of Independent Auditors 17
Consolidated Statement of Operations for the Years Ended
December 31, 1993, 1992 and 1991 18
Consolidated Balance Sheet at December 31, 1993 and 1992 19-20
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991 21
Consolidated Statement of Stockholder's Equity for the Years Ended
December 31, 1993, 1992 and 1991 22
Notes to Consolidated Financial Statements 23-35
CONSOLIDATED SCHEDULES FOR THE YEARS ENDED
DECEMBER 31, 1993, 1992 AND 1991
Schedule IV Indebtedness of and to Related Parties - Non Current 42-44
Schedule V Property, Plant and Equipment 45-47
Schedule VI Accumulated Depreciation, Amortization and
Obsolescence of Property, Plant and Equipment 48-50
Schedule VII Guarantees of Securities of Other Issuers (1993 only) 51
Schedule VIII Valuation and Qualifying Accounts and Reserves 52-54
Schedule IX Short-Term Borrowings 55-57
Schedule X Supplementary Income Statement Information 58
All other schedules are omitted since the required information is included in
the financial statements or notes thereto, or since the required information is
either not present or not present in sufficient amounts.
-40-
42
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post Effective Amendment No. 2
to the Registration Statement (Form S-3 No. 33-42998) of American Airlines,
Inc., and in the related Prospectus, of our report dated February 15, 1994,
with respect to the consolidated financial statements and schedules of American
Airlines, Inc. included in this Annual Report (Form 10-K) for the year ended
December 31, 1993.
ERNST & YOUNG
2121 San Jacinto
Dallas, Texas 75201
March 29, 1994
-41-
43
AMERICAN AIRLINES, INC.
Schedule IV - Indebtedness of and to Related Parties - Not Current
Year ended December 31, 1993
(in millions)
BALANCE AT INDEBTEDNESS TO
BEGINNING ------------------------------ BALANCE AT
NAME OF RELATED PARTY OF YEAR ADDITIONS DEDUCTIONS END OF YEAR
- --------------------- ---------- --------- ---------- -----------
AMR Corporation (a) $ 3,236 $ 1,198 $ (389) $ 4,045
(a) See Note 1 to consolidated financial statements included in this Form 10-K
for a description of the terms of this indebtedness.
-42-
44
AMERICAN AIRLINES, INC.
Schedule IV - Indebtedness of and to Related Parties - Not Current
Year ended December 31, 1992
(in millions)
BALANCE AT INDEBTEDNESS TO
BEGINNING ------------------------------ BALANCE AT
NAME OF RELATED PARTY OF YEAR ADDITIONS DEDUCTIONS END OF YEAR
- --------------------- ---------- --------- ---------- -----------
AMR Corporation (a) $ 1,950 $ 1,981 $ (695) $ 3,236
(a) See Note 1 to consolidated financial statements included in this Form 10-K
for a description of the terms of this indebtedness.
-43-
45
AMERICAN AIRLINES, INC.
Schedule IV - Indebtedness of and to Related Parties - Not Current
Year ended December 31, 1991
(in millions)
BALANCE AT INDEBTEDNESS TO
BEGINNING --------------------------- BALANCE AT
NAME OF RELATED PARTY OF YEAR ADDITIONS DEDUCTION END OF YEAR
- ------------------------ ---------- --------- ---------- -----------
AMR Corporation (a) $ 172 $ 2,270 $ (492) $ 1,950
(a) See Note 1 to consolidated financial statements included in this Form 10-K
for a description of the terms of this indebtedness.
-44-
46
AMERICAN AIRLINES, INC.
Schedule V - Property, Plant and Equipment
Year ended December 31, 1993
(in millions)
BALANCE AT NET TRANSFERS
BEGINNING ADDITIONS RETIREMENTS AND OTHER BALANCE AT
CLASSIFICATION OF YEAR AT COST AND SALES ADJUSTMENTS END OF YEAR
- -------------------------------------- --------- --------- ----------- ------------ -----------
Equipment and property:
Flight equipment $ 10,571 $ 2,053 $ (457) $ (25) $12,142
Other equipment and property 3,762 290 (278) (61) 3,713
-------- ------- ------- --------- -------
14,333 2,343 (735) (86) 15,855
-------- ------- ------- --------- -------
Equipment and property under capital leases:
Flight equipment 1,833 - (43) 32 1,822
Other equipment and property 237 - - 8 245
-------- ------- ------- --------- -------
2,070 - (43) 40 2,067
-------- ------- ------- --------- -------
Total $ 16,403 $ 2,343 $ (778) $ (46) $17,922
======== ======= ======= ========= =======
Additions to Flight Equipment includes amounts transferred from Purchase
Deposits upon delivery of aircraft.
-45-
47
AMERICAN AIRLINES, INC.
Schedule V - Property, Plant and Equipment
Year ended December 31, 1992
(in millions)
BALANCE AT NET TRANSFERS
BEGINNING ADDITIONS RETIREMENTS AND OTHER BALANCE AT
CLASSIFICATION OF YEAR AT COST AND SALES ADJUSTMENTS END OF YEAR
- -------------------------------------- --------- --------- ----------- ------------ -----------
Equipment and property:
Flight equipment $ 7,845 $ 3,307 $ - $ (581) $10,571
Other equipment and property 3,766 275 (264) (15) 3,762
------- ------- ------- -------- -------
11,611 3,582 (264) (596) 14,333
------- ------- ------- -------- -------
Equipment and property under capital leases:
Flight equipment 1,584 - (6) 255 1,833
Other equipment and property 286 - (12) (37) 237
------- ------- ------- -------- -------
1,870 - (18) 218 2,070
------- ------- ------- -------- -------
Total $13,481 $ 3,582 $ (282) $ (378) $16,403
======= ======= ======= ======== =======
Additions to Flight Equipment includes amounts transferred from Purchase
Deposits upon delivery of aircraft. Net Transfers and Other Adjustments
includes the sale and subsequent leaseback of two Boeing 757 aircraft, six
Boeing 767 aircraft, three Fokker 100 aircraft and one McDonnell Douglas MD-80
aircraft. Seven of these agreements were accounted for as capital leases.
-46-
48
AMERICAN AIRLINES, INC.
Schedule V - Property, Plant and Equipment
Year ended December 31, 1991
(in millions)
BALANCE AT NET TRANSFERS
BEGINNING ADDITIONS RETIREMENTS AND OTHER BALANCE AT
CLASSIFICATION OF YEAR AT COST AND SALES ADJUSTMENTS END OF YEAR
- -------------------------------------- --------- --------- ----------- ------------ -----------
Equipment and property:
Flight equipment $ 5,914 $ 3,088 $ (37) $ (1,120) $ 7,845
Other equipment and property 3,422 356 (3) (9) 3,766
-------- -------- -------- -------- -------
9,336 3,444 (40) (1,129) 11,611
-------- -------- -------- -------- -------
Equipment and property under capital leases:
Flight equipment 1,627 - (181) 138 1,584
Other equipment and property 287 - - (1) 286
-------- -------- -------- -------- -------
1,914 - (181) 137 1,870
-------- -------- -------- -------- -------
Total $ 11,250 $ 3,444 $ (221) $ (992) $13,481
======== ======== ======== ======== =======
Additions to Flight Equipment includes amounts transferred from Purchase
Deposits upon delivery of aircraft. Net Transfers and Other Adjustments
includes the sale and subsequent leaseback of thirteen Boeing 757 aircraft, two
Boeing 767 aircraft, six Fokker 100 aircraft and 29 McDonnell Douglas MD-80
aircraft. Six of these agreements were accounted for as capital leases.
-47-
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AMERICAN AIRLINES, INC.
Schedule VI - Accumulated Depreciation, Amortization and
Obsolescence of Property, Plant and Equipment
Year ended December 31, 1993
(in millions)
BALANCE AT NET TRANSFERS
BEGINNING ADDITIONS RETIREMENTS AND OTHER BALANCE AT
CLASSIFICATION OF YEAR AT COST AND SALES ADJUSTMENTS END OF YEAR
- -------------------------------------- --------- --------- ----------- ------------ -----------
Equipment and property:
Flight equipment $ 2,699 $ 571 $ (342) $ 22 2,950
Other equipment and property 1,676 364 (256) (35) 1,749
-------- -------- -------- -------- --------
4,375 935 (598) (13) 4,699
-------- -------- -------- --------- --------
Equipment and property under capital leases:
Flight equipment 551 98 (33) 18 634
Other equipment and property 65 11 - (3) 73
-------- -------- --------- -------- -------
616 109 (33) 15 707
-------- -------- -------- -------- -------
Total $ 4,991 1,044 $ (631) $ 2 $ 5,406
======== -------- ======== ======== =======
Provision for obsolescence of inventories
(Schedule VIII) 10
Other - principally amortization of route
acquisition costs and other assets 61
--------
Total depreciation and amortization $ 1,115
========
-48-
50
AMERICAN AIRLINES, INC.
Schedule VI - Accumulated Depreciation, Amortization and
Obsolescence of Property, Plant and Equipment
Year ended December 31, 1992
(in millions)
BALANCE AT NET TRANSFERS
BEGINNING ADDITIONS RETIREMENTS AND OTHER BALANCE AT
CLASSIFICATION OF YEAR AT COST AND SALES ADJUSTMENTS END OF YEAR
- -------------------------------------- --------- --------- ----------- ------------ -----------
Equipment and property:
Flight equipment $ 2,295 $ 444 $ - $ (40) $ 2,699
Other equipment and property 1,583 355 (248) (14) 1,676
-------- -------- ------- -------- -------
3,878 799 (248) (54) 4,375
-------- -------- ------- -------- -------
Equipment and property under capital leases:
Flight equipment 468 87 (2) (2) 551
Other equipment and property 69 3 (5) (2) 65
-------- -------- ------- -------- -------
537 90 (7) (4) 616
-------- -------- ------- -------- -------
Total $ 4,415 889 $ (255) $ (58) $ 4,991
======== ======= ======== =======
Provision for obsolescence of inventories
(Schedule VIII) 17
Other - principally amortization of route
acquisition costs and other assets 52
--------
Total depreciation and amortization $ 958
========
(a) Includes accumulated depreciation related to sale and subsequent leaseback
transactions. See Schedule V.
-49-
51
AMERICAN AIRLINES, INC.
Schedule VI - Accumulated Depreciation, Amortization and
Obsolescence of Property, Plant and Equipment
Year ended December 31, 1991
(in millions)
BALANCE AT NET TRANSFERS
BEGINNING ADDITIONS RETIREMENTS AND OTHER BALANCE AT
CLASSIFICATION OF YEAR AT COST AND SALES ADJUSTMENTS END OF YEAR
- -------------------------------------- --------- --------- ----------- ------------ -----------
Equipment and property:
Flight equipment $ 1,990 $ 344 $ (17) $ (22) 2,295
Other equipment and property 1,266 324 (3) (4) 1,583
-------- -------- -------- -------- --------
3,256 668 (20) (26) 3,878
-------- -------- -------- -------- --------
Equipment and property under capital leases:
Flight equipment 573 82 (181) (6) 468
Other equipment and property 59 12 - (2) 69
-------- -------- --------- -------- --------
632 94 (181) (8) 537
-------- -------- -------- -------- --------
Total $ 3,888 762 $ (201) $ (34) $ 4,415
======== ======== ======== ========
Provision for obsolescence of inventories
(Schedule VIII) 18
Other - principally amortization of route
acquisition costs and other assets 43
--------
Total depreciation and amortization $ 823
========
(a) Includes accumulated depreciation related to sale and subsequent leaseback
transactions. See Schedule V.
-50-
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AMERICAN AIRLINES, INC.
Schedule VII - Guarantees of Securities of Other Issuers
December 31, 1993 (in millions)
TITLE OF ISSUE PRINCIPAL AMOUNT
NAME OF ISSUER OF SECURITIES OF EACH CLASS OF SECURITIES GUARANTEED
GUARANTEED BY REGISTRANT GUARANTEED BY REGISTRANT AND OUTSTANDING NATURE OF GUARANTEE
- ----------------------------------- ---------------------------------------- ---------------- -------------------
The Cities of Dallas and Fort Worth Dallas/Fort Worth Regional Airport $132 Guarantee of principal
American Airlines Special Facilities and interest by American
Revenue Bonds, Series 1979, subject to
redemption from November 1, 1993 through
November 1, 2012, with interest ranging
from 6.35% to 7.25%
-51-
53
AMERICAN AIRLINES, INC.
Schedule VIII - Valuation and Qualifying Accounts and Reserves
(deducted from asset to which applicable)
Year ended December 31, 1993
(in millions)
CHARGED TO
-------------------------------------
SALES,
BALANCE AT OTHER DEPRECIATION RETIREMENTS BALANCE
BEGINNING OPERATING AND NET AND AT
OF YEAR EXPENSES AMORTIZATION MISC-NET WRITE-OFF TRANSFERS OF YEAR
---------- --------- ------------ -------- --------- ----------- -------
Allowance for uncollectible
accounts $ 28 $ 19 $ - $ - $ (21) $ - $ 26
Allowance for obsolescence of
inventories 130 - 10 (a) - - 22 162
Provision for anticipated
loss on fleet retirement 20 - - 125 (83) (12)(b) 50
(a) See Schedule VI.
(b) Transfer to allowance for obsolescence of inventories.
-52-
54
AMERICAN AIRLINES, INC.
Schedule VIII - Valuation and Qualifying Accounts and Reserves
(deducted from asset to which applicable)
Year ended December 31, 1992
(in millions)
CHARGED TO
-------------------------------------
SALES,
BALANCE AT OTHER DEPRECIATION RETIREMENTS BALANCE
BEGINNING OPERATING AND NET AND AT
OF YEAR EXPENSES AMORTIZATION MISC-NET WRITE-OFF TRANSFERS OF YEAR
---------- --------- ------------ -------- --------- ----------- -------
Allowance for uncollectible
accounts $ 27 $ 19 $ - $ - $ (18) $ - $ 28
Allowance for obsolescence of
inventories 118 - 17 (a) - (5) - 130
Provision for anticipated
loss on fleet retirement 40 - - (7) (13) - 20
(a) See Schedule VI.
-53-
55
AMERICAN AIRLINES, INC.
Schedule VIII - Valuation and Qualifying Accounts and Reserves
(deducted from asset to which applicable)
Year ended December 31, 1991
(in millions)
CHARGED TO
-------------------------------------
SALES,
BALANCE AT OTHER DEPRECIATION RETIREMENTS BALANCE
BEGINNING OPERATING AND NET AND AT
OF YEAR EXPENSES AMORTIZATION MISC-NET WRITE-OFF TRANSFERS OF YEAR
---------- --------- ------------ -------- --------- ----------- -------
Allowance for uncollectible $ - $ (17) $ - $ 27
accounts $ 10 $ 34 $ -
Allowance for obsolescence
of inventories 108 - 18 (a) - - (10) 118
Provision for anticipated
loss on fleet retirement 32 - - 42 (34) - 40
(a) See Schedule VI.
-54-
56
AMERICAN AIRLINES, INC.
Schedule IX - Short-Term Borrowings
Year ended December 31, 1993
(in millions)
WEIGHTED MAXIMUM AMOUNT AVERAGE AMOUNT WEIGHTED AVERAGE
CATEGORY OF AGGREGATE BALANCE AT AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
SHORT-TERM BORROWINGS END OF YEAR INTEREST RATE DURING THE YEAR DURING THE YEAR (a) DURING THE YEAR (b)
- --------------------- ----------- ------------- --------------- ---------------- ----------------
Commercial paper (c) $ 0 - $ 412 $ 82 4.38%
(a) Computed based on monthly amount outstanding during the year.
(b) Computed by dividing total interest expense by the average amount
outstanding during the year.
(c) Commercial paper generally matures within 120 days after issue with no
provisions for renewal.
-55-
57
AMERICAN AIRLINES, INC.
Schedule IX - Short-Term Borrowings
Year ended December 31, 1992
(in millions)
WEIGHTED MAXIMUM AMOUNT AVERAGE AMOUNT WEIGHTED AVERAGE
CATEGORY OF AGGREGATE BALANCE AT AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
SHORT-TERM BORROWINGS END OF YEAR INTEREST RATE DURING THE YEAR DURING THE YEAR (a) DURING THE YEAR (b)
- --------------------- ----------- ------------- --------------- ---------------- ----------------
Commercial paper (c) $ 380 3.90% $ 413 $ 409 3.90%
(a) Computed based on monthly amount outstanding during the year.
(b) Computed by dividing total interest expense by the average amount
outstanding during the year.
(c) Commercial paper generally matures within 120 days after issue with no
provisions for renewal.
-56-
58
AMERICAN AIRLINES, INC.
Schedule IX - Short-Term Borrowings
Year ended December 31, 1991
(in millions)
WEIGHTED MAXIMUM AMOUNT AVERAGE AMOUNT WEIGHTED AVERAGE
CATEGORY OF AGGREGATE BALANCE AT AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
SHORT-TERM BORROWINGS END OF YEAR INTEREST RATE DURING THE YEAR DURING THE YEAR (a) DURING THE YEAR (b)
- --------------------- ----------- ------------- --------------- ---------------- ----------------
Commercial paper (c) $ 411 4.99% $ 659 $ 505 6.48%
Facility agreements (c) - 0% 785 194 7.47%
Other (c) - 0% 504 252 7.72%
(a) Computed based on monthly amount outstanding during the year.
(b) Computed by dividing total interest expense by the average amount
outstanding during the year.
(c) Commercial paper generally matures within 120 days after issue with no
provisions for renewal.
Facility agreement borrowings generally mature within 100 days after
issue, with a renewal option available over the term of the facility
agreement.
American also borrows additional funds from various institutions on a
short-term basis at the lenders' prevailing rates.
-57-
59
AMERICAN AIRLINES, INC.
Schedule X - Supplementary Income Statement Information
Years ended December 31, 1993, 1992 and 1991
(in millions)
1993 1992 1991
------ ------ ------
Advertising expense $ 197 $ 198 $ 241
====== ====== ======
-58-
60
Exhibit 12
AMERICAN AIRLINES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31,
-------------------------------------------------------------
1989 1990 1991 1992 1993
---------- ---------- ---------- ---------- --------
Earnings:
Earnings (loss) before income taxes,
extraordinary loss, and cumulative
effect of accounting changes $ 674 $ (97) $ (229) $ (396) $ 74
Add: Total fixed charges (per below) 495 630 812 961 1,000
Less: Interest capitalized 64 114 153 98 49
-------- -------- -------- -------- --------
Total earnings $ 1,101 $ 419 $ 430 $ 467 $ 1,025
======== ======== ======== ======== ========
Fixed charges:
Interest $ 211 $ 277 $ 345 $ 386 $ 408
Portion of rental expense representative
of the interest factor 282 351 463 572 588
Amortization of debt expense 2 2 4 3 4
-------- -------- -------- -------- --------
Total fixed charges $ 495 $ 630 $ 812 $ 961 $ 1,000
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 2.22 - - - 1.03
======== ======== ======== ======== ========
Coverage deficiency $ - $ 211 $ 382 $ 494 $ -
======== ======== ======== ======== ========
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61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN AIRLINES, INC.
/s/ Robert L. Crandall
Robert L. Crandall
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Michael J. Durham
Michael J. Durham
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 16, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates noted:
Directors:
/s/ Howard P. Allen /s/ William Lyon
Howard P. Allen William Lyon
/s/ Edward A. Brennan /s/ Ann D. McLaughlin
Edward A. Brennan Ann D. McLaughlin
/s/ Christopher F. Edley /s/ Charles H. Pistor, Jr.
Christopher F. Edley Charles H. Pistor, Jr.
/s/ Antonio Luis Ferre' /s/ Joe M. Rodgers
Antonio Luis Ferre' Joe M. Rodgers
/s/ Charles T. Fisher, III /s/ Maurice Segall
Charles T. Fisher, III Maurice Segall
/s/ Dee J. Kelly /s/ Eugene F. Williams, Jr.
Dee J. Kelly Eugene F. Williams, Jr.
Date: March 16, 1994
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